Gross dollar retention data
Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Connect on LinkedIn or email him directly at email@example.com, especially founders at all stages.
A very important but often overshadowed metric in SaaS is gross dollar retention. Gross dollar retention measures how much of your customer revenue has remained with you a year later. Formulaically, it’s beginning ARR — downgrades — churn all divided by beginning ARR.
While 59 SaaS companies disclose net dollar retention (which includes upgrades), only 11 of those disclose gross dollar retention. That data is presented below and as you can see, median gross dollar retention is 96%, which is extraordinary.
A few observations.
Gross dollar retention above 88%. Of the 11 publicly traded companies that disclosed their gross dollar retention at IPO, the lowest figure was 88% which is still very good. Generally speaking, healthy SaaaS has gross dollar retention of 80%+. Obviously, the higher gross dollar retention is, the higher net dollar retention will be.
Selection bias. The fact that only 11 companies share their gross dollar retention while 59 share net dollar retention should indicate to you the data is highly subject to selection bias. In other words, only those companies with fantastic gross dollar retention are reporting it. Even though the median here is 96%, we continue to believe 80%+ gross dollar retention is a fine place to be. Note that the net dollar retention of the companies that report gross dollar is extremely high (121% on median), whereas the median for the 59 SaaS companies that have reported net dollar retention is 111%.
Some firms prefer gross dollar retention. We do know some growth equity and venture funds that look to gross dollar retention more so than net dollar. Their view is that so long as you’re not losing customers, they can teach you how to upgrade those customers, whereas if gross dollar retention is low, that’s a much harder problem to solve (retaining customers).