Are You Having Meaningful Conversations About NDR?
Net Dollar Retention (NDR) is the most important business metric that SaaS companies should be tracking. NDR captures and reflects the growth and performance of your overall business and revenue. There is a direct and strong correlation between NDR performance and your company’s valuation; in our experience as Valuize, companies with NDR greater than 120% have higher valuations as compared to companies with a NDR less than 120%.
With many of the industry’s most accomplished business leaders now recognizing the power of NDR, It’s no secret that NDR should be one of the biggest and most important conversations that your CEO and Board are having. But, are you enabling them to have the right conversation?
In this article, we share some compelling advice and actionable insights to effectively talk to your board about NDR and lead the charge on sustaining and growing your organization’s NDR performance.
Start With The “Why”, “What” & “How” Of NDR
As you prepare to speak to your CEO and Board about your NDR performance, don’t just show up and recite a bunch of numbers. While it’s natural to get excited about strong net retention performance or feel concerned about low performance, it can be easy to forget to tell the story behind the number in the process. Engaging in a conversation that explains the performance, trends and actions helps the board members understand whether the performance is a one-time hit or a trend that they can predict and expect for future performance. As you approach this conversation, be ready to elaborate on the metric by explaining:
- The “What” -what is your NDR number today, what has it been in the past, and what do you anticipate it to be in the future? Talking about baselines and forecasts will help your leadership understand the sustainability of performance and help build confidence that you are properly setting the business up for success.
- The “Why”– why is NDR what it is? Why is it performing well, or why are you seeing a dip in performance? Are there specific trends, reasons or customer feedback that explain your performance? This guiding principle will help your leadership fully understand the story behind the metric and plan for the future.
- The “How” – how can you and your team influence the number in a way that creates long-term sustained growth? As you understand what the number is and the reasons for its performance, how can you improve NDR and grow it over time?
Don’t Let NDR Hide Gross Retention Rate (GRR) Issues
High growth companies with best-in-class NDR can become blind to retention issues, allowing net new sales and expansions to hide churn and downsizing problems. When you talk to your CEO and Board about your NDR performance, stay focused on your customer retention and retention challenges. If you are a multi-product company, it can be tempting to swap out low performing solutions for higher value products in a desire to maintain favourable retention numbers. While we all want to ensure we’re driving and retaining revenue effectively, it will cause more harm than good to swap out products and not report the churn because it masks underlying product adoption issues and misses out on solution improvements. To avoid this, ensure you are having the full conversation and reporting churn so that you and your Leadership team can address and solve these product gaps. Remember, the more holes in the leaky bucket you plug, the less water you will need to fill the bucket. Once these gaps are filled, you can continue to deliver value to your customers and drive even more incremental revenue.
Forecast Your NDR Performance
As we mentioned above, your CEO and Board members will want to know if your NDR performance is sustainable so that they can develop a multi-year revenue forecast. In your conversations, leverage customer data, insights scores, retention, and revenue forecasts to help predict and forecast multi-quarter NDR performance. Look beyond the current quarter and forecast for the next 3 quarters, providing a full year’s perspective. This allows you to get ahead of retention and revenue challenges and demonstrate your command of the business.
Align Your Customer Success Investments To NDR
Don’t be afraid to ask for investment help from your leadership team. In a recent article, we talked about how to report and align your CS investment strategy around NDR. It’s important to talk to your CEO and Board about what you need in order to drive sustained growth and performance. As you tell the story of the “Why” behind your NDR performance, you should be sure to also tell the story of how you are going to maximize your CS budget and outline future investment requests required to drive growth.
Talk About NDR…Your Growth Depends On It!
The emerging gold standard reporting metric for SaaS organizations is Net Dollar Retention. As one of the best measures of long-term value creation, you need to highlight every facet of this essential metric. When you have the right conversation with your CEO and Board that encapsulates the what, why and how of NDR, reveals GRR issues, forecasts future performance and aligns with your CS investment, you will lead a powerful charge to driving faster and more efficient long-term growth.
Have you secured the investment you need to build and scale a successful CS program? Discover the new economics of Customer Success and a new metric to measure the impact of your CS organization that will help you definitively prove the ROI of Customer Success to your Leadership team.