Net Dollar Retention (NDR) is one of the core financial metrics for SaaS companies, and one where software developers have an outsized impact.  This article explains NDR and how software influences can drive the number down.  Finally, it discusses three areas for developers to focus on in order to bring the number up.  

What is Net Dollar Retention?

Net Dollar Retention is the rate that your existing customers continue to spend money with your company.  Renewals are flat, churn makes it go down, and expansion makes it go up.

As a formula using AAR (Annual Recurring Revenue), it looks like this:

( [Renewed AAR] + [Expanded AAR] – [Churn] ) / [Previous AAR]

Besides being a core metric, NDR is a key metric for companies considering going public.  Typically, a company going public needs an NDR over 107%, and ideally over 120%.

Only existing customers affect this metric!  For Net Dollar Retention it doesn’t matter if you replace every customer that churns with ten new ones, your retention rate will be terrible.

How Developers Impact Net Dollar Retention

There are only two real levers with NDR: Increase spend and reduce churn; and there is little that developers can do that will directly increase customer spend.  

The top 3 developer levers to reduce churn:

1. Fix any bugs that corrupt or lose data
2. Make the system more reliable
3. Make the system faster

Fix Any Bugs That Corrupt Or Lose Data

This is the big one!

Customers come to your service to get things done.  The more often they hit bugs, the faster they will churn.  Only developers can fix bugs and prevent data corruption.

Make The System More Reliable

Close second to data corruption is reliability.

95% success rates mean that you should expect a daily job will fail at least once a month.  If customers don’t trust your system to work, they will sit and watch the process.  Usually by continually hitting refresh on your site.  This is a massive waste for your customer and makes your SaaS much more expensive.

The less reliable your service is, the faster they will churn.  Reliability is more than just a developer problem, but developers will need to lead the architectural charge.

Make The System Faster

Speed is a distant third because it rarely impacts the value that customers get from your service.  Speed, especially UI speed, has a massive impact on the customer experience.

Slow websites won’t make customers leave, but they will kill your net promoter score and leave them open to a switch.

They don’t want to waste time staring at a blank screen waiting to render.  When the problem is inefficient code, it is something that only a developer can fix

NDR is a Core Metric for SaaS Health

NDR is a core metric for health, and a critical one for companies seriously looking at going public.  Developers can heavily influence the number by reducing churn.

Fix bugs, improve stability and increase performance.

Developers can push these levers and improve NDR; no one else in the company has that power!  Become a hero to your business, pay attention to NDR and how you can reduce churn!