Gross dollar retention rate
What is gross dollar retention rate (GDR)?
The gross dollar retention rate (GDR or GRR) metric measures the share of the current annual recurring revenue (ARR) linked to the customer base that was active in the previous period excluding expansion revenue. For B2B SaaS companies, GDR is often measured over a twelve-month period (LTM or TTM), tracking the progress of the customer base active 12 months ago. Some companies calculate GDR at shorter intervals (e.g., one quarter) depending on the average duration of contracts and the mechanism for upsell.
Why is it important to measure our gross dollar retention rate (GDR)?
Gross dollar retention (GDR) rate is a critical performance metric for assessing the overall health, growth, and long-term resilience of a business. This holds particular significance for Software-as-a-Service (SaaS) Business-to-Business (B2B) companies, which often make substantial investments in customer acquisition during their early stages. The GDR rate reflects the percentage of revenue retained from existing customers without considering expansion revenue.
A high GDR rate signifies that the company has been successful in retaining a significant portion of its existing customers' revenue. It indicates that customers are satisfied with the product or service and are continuing to renew their subscriptions or contracts. A robust GDR rate can be indicative of strong customer relationships and effective customer retention strategies.
On the contrary, a low GDR rate could be likened to a "leaky bucket," where the company is continuously investing resources to acquire new customers but fails to retain them or encourage their growth during renewal periods. This situation can lead to revenue loss and hinder the company's long-term sustainability and growth prospects.
By measuring the GDR rate, businesses gain valuable insights into the effectiveness of their customer retention efforts. It helps identify areas that require improvement in the customer experience, support, or product offerings. Moreover, understanding the GDR rate allows companies to project revenue stability, plan budgets, and make informed decisions to optimize customer retention and revenue generation over time.
How is net dollar retention rate calculated?
GDR is expressed as a percentage of the starting ARR. It includes the starting ARR minus any churn or contraction.
Another way to think about GDR is shown in the chart below which visualizes the churn and contraction components of the GDR calculation.