2020 was the year software saved the world.
As businesses were forced to digitalise their offerings for distributed teams across the world, demand for SaaS tools surged. Existing software titans like Microsoft and Slack thrived in 2020. Breakout SaaS stars like UiPath and Palantir became decacorns, and investors poured hundreds of millions into built-for-lockdown platforms like Zoom and Hopin.
Yet, the year was also a difficult one for many smaller SaaS firms, who bore the brunt of the year’s economic consequences. Businesses looked for non-essential costs to cut, and software suffered – March 2020 was the biggest ever month for customer churn in the history of SaaS.
Heading into 2021, the only certainty for growth planning is that uncertainty is not going away. As a result, tech businesses, particularly SaaS, will be forced to abandon ‘growth at all cost’ mindset, and instead must plan their growth more sustainably. Ambitions will not change, but tech businesses with global aspirations will now need a strategy that allows them to scale quickly and sustainably.
The emphasis will be on building your company on the strongest foundations possible. For software businesses, that foundation is your revenue delivery strategy and Net Dollar Retention (NDR) is the metric by which your business will be measured.
NDR: The measure of software business success in 2021
In 2021, B2B SaaS companies will undoubtedly face intense competition, living or dying by customer acquisition costs and major economic uncertainty. In the face of this uncertainty, leading SaaS companies must shift to a new model focused on long-term relationships, efficient growth, and crucially, optimising net dollar retention (NDR).
NDR is a critical metric, which sheds light on the health of your business and its potential for growth. As a percentage, it takes into account expansions and contractions in your monthly recurring revenue (MRR) and your customer churn to calculate how much revenue from current customers you retain across a certain period of time. This, in turn, helps work out how much revenue growth you’re actually achieving, regardless of how many new customers you’ve attained, and how satisfied your existing customers are with their subscriptions. If your customers are spending more with you as time goes on, your NDR will stand at above 100% – and the higher the NDR the better.
In fact, software giants that have exploded in scale in recent years have all had brilliant NDR in common. Take Snowflake, which had an NDR of 158% when it went public in September. This meant that if Snowflake had suspended all customer acquisition in the year before its IPO, it still would have grown by 58% based on the increasing spending from their pre-existing customers. Other SaaS leaders with healthy NDR include Twilio (155%) and Elastic (142%). Put simply, a strong NDR is essential for sustainably growing your SaaS business, however big or small.
Turbocharging your NDR: The importance of a revenue delivery strategy
Traditionally, there have been two critical components for exponential business growth. Firstly, product strategy is pivotal, as it determines whether your customers are finding value in your service, and by extension whether they’ll expand their usage or downgrade. The second key source of growth is your company’s go-to-market strategy, and how you’re targeting potential customers in the first place.
In 2021, sustainable growth will no longer just be about building the right products and having the right go-to-market strategy – it will be about optimising NDR through an effective revenue delivery strategy. Growing SaaS companies must consider how they will handle the complexities of localising checkouts, managing payments, billing various types of customers and ensuring compliance with global regulations. Failure to do so can result in anything from involuntary churn, when a customer’s subscription is cancelled because of failed payments, to sales tax evasion fines, all dangerously threatening your NDR percentage.
A successful revenue delivery strategy relies on effective revenue infrastructure – the systems, processes and teams that power your acquisition and retention of customers. For many SaaS businesses, such an infrastructure is currently a haphazard assortment of subscription platforms, payment gateways, data governance platforms and other tools which are hard to integrate, maintain and manage.
To optimise NDR and drive long-term customer relationships, SaaS companies must adopt a robust revenue delivery strategy and streamlined revenue infrastructure. A revenue delivery platform can deliver this by integrating checkout, payment, and subscription management, making it easier to grow internationally, enter new markets and subsequently boost NDR, helping SaaS executives make data-driven decisions on expansion and growth, while removing the need for expensive engineering and specialised resources.
A new path to SaaS success
This year was a do or die moment for the SaaS ecosystem. While many software trailblazers reaped the rewards of heightened demand for their product and enjoyed healthy returns, others fell victim to their own unsustainable growth strategies and saw their revenues collapse. 2020 made it clear for many in the SaaS community that a new approach to growth planning is imperative, even if ambitions will go unchanged. Looking ahead to 2021, it’s clear that an effective revenue delivery strategy that’s rooted in optimising net dollar retention (NDR) will be the key to providing SaaS businesses more certainty in the uncertain year ahead.
Christian Owens is CEO and Co-founder of B2B Revenue Delivery Platform Paddle. The Paddle Revenue Delivery Platform for B2B SaaS companies powers growth across acquisition, renewals and expansion. With Paddle, companies are finally able to transform their revenue delivery infrastructure into a strategic growth lever to respond faster and more precisely to every opportunity. Paddle has 140 talented employees serving over 2,000 software sellers in 245 countries and territories globally.