Net dollar retention is quickly becoming a must-track SaaS metric for customer success and revenue operations teams that want greater visibility into the health and longevity of their business.
As an added benefit, NDR is also a cross-functional metric that can drive greater alignment across teams and, thus, a smoother customer journey. Net dollar retention connects revenue operations stakeholders, and it’s a critical performance metric, especially as customer success increasingly drives revenue.
Acquiring net-new customers is hard, and factors such as market conditions and competitors can slow sales processes. Additionally, a single customer can engage with several individuals and teams across your organization, based on their evolving needs.
NDR repositions customer success as a team sport. Focusing on NDR reflects a focus on customer satisfaction, adoption, and value realization throughout every corner of your organization.
At Generation Revenue 2021, Clari’s virtual conference for revenue leaders, customer success and revenue operations experts discussed how they build teams aligned with the customer journey, why pre-sales and post-sales are intertwined, and how your business can maximize NDR.
At GenR, Gainsight’s Chief Revenue Officer Jeff Depa cited 2020’s market volatility as a catalyst for the growing importance of customer retention metrics like NDR.
“If this past year has taught me anything, it’s reinforced the importance of having a defined approach to retention and expansion that goes well beyond just defense,” says Depa.
Gainsight, the leading customer success technology company, is well positioned to share insights on what it takes to create customer success. Depa spoke alongside Dione Hedgpeth, Chief Customer Officer at Sumo Logic, and David Sakamoto, Vice President of Customer Success at GitLab, to share actionable strategies that can help your business keep customers, while also executing land-and-expand motions to grow NDR.
Defining and calculating net dollar retention
First, let’s define NDR.
NDR is a percentage that accounts for both upsells and churn to show how your business retained revenue from customers over the course of a year. It’s calculated with the formula:
Net Dollar Retention (NDR) = (Beginning ARR - Churn + Upsell) / (Beginning ARR)
NDR illustrates your business’ health today, its growth potential over time, and whether your customers are staying with you in the long term.
Public companies with higher NDR rates tend to also have higher valuations, according to the Software Equity Group.
When Sumo Logic went public in 2020, the company had a net dollar retention rate of between approximately 120-130% for each of the prior 10 quarters, according to Meritech Capital.
Crunchbase defines a “good level” of NDR as above 100%, with a median rate of about 107% at the time of a company’s initial public offering.
NDR is such a critical metric that everyone in the revenue operations structure—including the C-suite, sales, finance, customer success, product, marketing—has a stake in boosting your organization’s NDR rate.
Mapping Roles and Responsibilities to the Customer Life Cycle
So how do you build teams that drive NDR?
What skills do you need?
Who do you hire?
According to Hedgpeth, it starts with first understanding the customer journey, the customers’ growth goals, and the milestones they need to achieve along the way.
“Don’t start with the roles,” says Hedgpeth “Start with outlining the journey map.”
“It’s defining all the key activities that you need to do to drive retention, expansion, and upsell. And then once you lay out all of the activities, you should lay out the skills needed to execute those activities and that’ll start to inform you how many roles you need.”
Sakamoto echoed Hedgpeth, adding that regardless of how your team is structured, the team needs to focus on two key factors:
- The customer experience, which includes value realization and positive outcomes that are aligned with the customer’s strategic goals
- The commercial motion, which can include renewals, expansion, and other transactions associated with a delighted customer
Depending on your organization's maturity, size and budget, and the customers’ needs, these focuses may be centralized in one role or distributed across multiple people and teams.
“While there’s no right-or-wrong, formulaic answer, what’s important is that the team aligns,” says Sakamoto. “And that the team knows how to make that clear. Because if roles and responsibilities are not clear internally, I can guarantee that’ll be very obvious to your customers.”
For Depa at Gainsight, the customer journey starts at the buying stage. The sales cycle provides vital insights into the customer’s long-term strategic goals. Collaboration between sales and customer success teams early on can ultimately help your customer reach their growth goals, while also helping your organization achieve a better NDR rate.
It’s up to everyone at your company supporting customers to ensure your solution is delivering the value that meets each customer’s unique needs, continuously.
“We talk a lot about the customer journey, but it’s also really important to start before someone becomes a customer,” says Depa. “We’ve spent a lot of time understanding the buyer’s journey. When you do that, you understand that your customers join you at different points in their capability, maturity curve with regard to the product you’re bringing to market.”
Erasing the line between pre-sales and post-sales
While defining team roles is important for your organization’s internal planning structure, the customer shouldn’t see that distinction externally. Categorizing certain activities as either pre- or post-sales draws a clear line between two functions that are fundamentally connected from the customer perspective.
At Sumo Logic, Hedgpeth is on a mission to eliminate handoffs between sales and customer success. That is, from the customer’s point of view.
“It’s hard to get rid of the handoff, but that should be the ultimate goal for all of us, that there is no such thing as pre- and post-sales,” says Hedgpeth. “We’re creating the success plan from the sales methodology assets that are already created, so that the customer doesn’t feel like there’s a handoff at all.”
In an ideal world, handoffs between internal teams stay behind the scenes, and the customer feels supported throughout any transition. When teams align, customers fluidly transition from buyer to customer to advocate and back again.
Because NDR is a metric with shared ownership across internal teams, measuring it can be a forcing function for better alignment. NDR isn’t exclusively a customer success metric—it’s a “business-wide” metric according to Gainsight.
“At Gainsight, we’ve effectively blurred the line between pre-sales and post-sales, which in my view is really, really key to driving NDR,” says Depa. “Let’s face it—you need that shared framework across customer success, marketing, sales, and services. Silos crush your customer experience.”
When teams embrace alignment and shared accountability, the customer journey can seamlessly flow from one stage to the next. Throughout the journey, information is shared, communication is clear and consistent, and ultimately, the customer thrives.
Strategies to grow NDR at your organization
GitLab, Sumo Logic, and Gainsight are all focused on boosting NDR. Their approaches include a range of actionable strategies that feed into their overall NDR percentage. Here’s how executives at those three firms approach their NDRs:
Creating a customer-centric success plan. At GitLab, Sakamoto and his team work alongside customers to build comprehensive success plans that deliver lasting value. This isn’t a traditional, static account plan. Instead, it’s a dynamic resource that supports the customer’s needs as they change over time.
Sakamoto recommends that customer success plans track outcomes, goals, and metrics—but also executive business reviews (EBRs), customer engagements, time to value, and adoption. Plans should also have triggers to proactively identify opportunities for expansions that deliver value directly tied to each customer’s needs and goals.
Sakamoto urges his teams to ask:
- Are you tracking the success of expansions?
- If they succeeded or didn’t succeed, why is that?
- Are you collecting customer sentiment along the way to make sure you understand where they’re at?
With those answers, “you’re gonna drive that customer outcome, value realization, and NDR on behalf of the company,” he says.
Leveraging weighted health scoring. Hedgpeth and her team at Sumo Logic have developed and implemented a multi-factor scoring system to gauge customer health. To refine their process, they rigorously tested the scoring system on hundreds of accounts.
The system uses a 100-point scoring process, with accounts then coded with green, yellow, and red to denote health at a high level, with green representing the customers most likely to renew.
“Last quarter, we renewed our green customers at 99%, so I know the system’s right,” Hedgpeth says.
Factors that play into Sumo Logic’s scoring system are economic buyer sentiment, the success plan, adoption, and training—complemented by input from the customer success manager who adds relevant context, such as if the customer was acquired or is on track to renew or expand.
Nurturing your relationship with the economic buyer: Another important focus for Hedgpeth is keeping up with economic buyer(s) and buying groups to avoid surprises.
“I’m a big believer in having the customer’s team as part of the [health] score,” she says. “If there’s an economic buyer swap or if there’s no economic buyer, you’re at risk.”
Traditionally in sales, the success of any deal depends on buy-in from the person with purchasing power, according to the MEDDIC methodology. That “E” for “economic buyer” translates directly to renewal and expansion motions, where it’s also vital to have a strong relationship with the buyer.
Elements of sales methodology can be valuable for customer success teams and, in turn, revenue operations.
Sumo Logic uses Clari to support their revenue operations motions, including customer success. Organizations can leverage Clari’s Revenue Intelligence and Relationship Insights to gain clearer insight into customer relationships that can drive better NDR. Clari also automates data capture, so information about economic buyers is tracked and flows directly into the CRM.
Tracking sponsors across their careers: Similar to focusing on the economic buyer, Depa takes a macro look at the industry to identify prospects and customers with past experience working with Gainsight. That familiarity has the potential to drive big revenue wins.
“The customer success industry is growing really fast, and we have customers that move from account to account,” says Depa. “Oftentimes, what you find is customers or prospects that have engaged before and have gone through a [technology] deployment already are much more likely to see the full breadth of offerings and drive a larger solution into their organization.”
Enabling value with playbooks and pathways: Playbooks and a shared single source of truth allow companies to scale, while also maintaining consistency across the holistic customer experience.
GitLab and Sumo Logic develop and deploy playbooks that outline tactics to build comfort in process and consistency in practice across teams.
Depa’s team also maps out proven routes to gaining value and getting customers that much closer to their strategic goals.
“At Gainsight, we’ve got an initiative here that’s called O2 that’s code for operationalizing outcomes, and it’s really about integrating value selling and value delivery,” he says. “We leverage prescriptive paths that most of our customers have had the ability to get quicker time to value if they follow these paths.”
For more customer perspectives, check out Clari’s customer stories.
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