Dear SaaStr: How Should I Calculate Gross Dollar Retention For Our Investors?

Dear SaaStr: How Should I Calculate Gross Dollar Retention For Our Investors?

Gross Dollar Retention (GRR) is a critical metric for SaaS businesses, especially when presenting to investors. It tells them how much of your revenue base you’re retaining, excluding any upsells or expansions. Here’s the best-practice way to calculate it:

1. Start with your Beginning ARR (Annual Recurring Revenue): This is the ARR from your existing customers at the start of the period you’re measuring.

2. Subtract Churned ARR: This is the revenue lost from customers who canceled their subscriptions during the period.

3. Subtract Downgraded ARR: This is the revenue lost from customers who stayed but reduced their spend (e.g., moved to a lower-tier plan).

4. Divide by the Beginning ARR: This gives you the percentage of revenue retained.

   Formula:
   GRR = (Beginning ARR – Churned ARR – Downgraded ARR) ÷ Beginning ARR

   For example, if you started with $1M ARR, lost $50K to churn, and $50K to downgrades, your GRR would be:
   GRR = ($1M – $50K – $50K) ÷ $1M = 90%.

Key Best Practices for Presenting GRR to Investors:

• Exclude Upsells and Expansions: GRR focuses purely on retention, not growth from existing customers. This makes it a more conservative and honest metric.

• Segment by Customer Type: Break down GRR by customer segments (e.g., SMB, mid-market, enterprise). Investors want to see where you’re strongest and where you might have challenges.

• Benchmark Your GRR: Investors will compare your GRR to industry standards:

  • Enterprise SaaS: 90-95%
  • Mid-market SaaS: 85-90%
  • SMB SaaS: 80-85%
    Anything below these benchmarks signals potential retention issues ‌3‌.

• Show Trends Over Time: Investors want to see if your GRR is improving, stable, or declining. A consistent or improving GRR builds confidence in your product’s stickiness.

• Highlight Onboarding and Customer Success Investments: GRR is heavily influenced by how well you onboard and support customers. If you’re spending 5-15% of your revenue on Customer Success (scaled by ACV), make sure to mention it. For enterprise customers, this should be closer to 12-15% ‌3‌.

• Explain Variances: If your GRR fluctuates by more than 5% quarter-over-quarter, be prepared to explain why. This could be due to seasonality, customer mix, or other factors ‌3‌.

Investors care about GRR because it’s a proxy for product-market fit and customer satisfaction. A strong GRR shows that your product works, your customers are happy, and your revenue base is stable. Nail this metric, and you’ll have a solid foundation for your pitch.

And a great related deep dive here: