Dollar Based Net Expansion Rate Vs Net Retention Rate
As a business owner or marketer, understanding the metrics that drive growth is essential. Two of the most commonly used metrics are dollar-based net expansion rate (DBNER) and net retention rate (NRR). While both metrics measure customer retention and growth, they do so in different ways. In this article, we'll explore the differences between DBNER and NRR, how they're calculated, and which metric is more important for your business.
What is Dollar-Based Net Expansion Rate?
Dollar-based net expansion rate (DBNER) is a metric that measures the amount of revenue growth from existing customers over a given period. It takes into account the revenue generated from upsells, cross-sells, and expansions, as well as customer churn. DBNER is calculated by dividing the revenue from upsells, cross-sells, and expansions by the revenue from the same cohort of customers at the beginning of the period.
For example, if a company has 100 customers at the beginning of a quarter and generates $100,000 in revenue from those customers, and then generates an additional $20,000 in revenue from those same customers during the quarter, the DBNER for that quarter would be 20%.
What is Net Retention Rate?
Net retention rate (NRR) is a metric that measures the overall growth or shrinkage of revenue from existing customers over a given period. It takes into account customer churn, expansions, and downgrades. NRR is calculated by dividing the total revenue from a cohort of customers at the end of a period by the total revenue from the same cohort of customers at the beginning of the period.
For example, if a company has 100 customers at the beginning of a quarter and generates $100,000 in revenue from those customers, and then generates an additional $20,000 in revenue from those same customers during the quarter, but also experiences $5,000 in customer churn, the NRR for that quarter would be 115%.
Which Metric is More Important?
Both DBNER and NRR are important metrics for measuring customer retention and growth, but they provide different insights. DBNER measures the success of upselling and cross-selling efforts, while NRR measures the overall health of the customer base.
For businesses that rely heavily on upsells and expansions, DBNER may be the more important metric. This is especially true for companies that offer subscription-based services or have a high lifetime customer value. DBNER can help businesses identify opportunities for growth and measure the effectiveness of their upsell and cross-sell strategies.
On the other hand, for businesses that have a high churn rate or rely heavily on customer retention, NRR may be the more important metric. NRR can help businesses understand the overall health of their customer base and identify areas where they need to improve retention or reduce churn.
Conclusion
Both dollar-based net expansion rate (DBNER) and net retention rate (NRR) are important metrics for measuring customer retention and growth. DBNER measures the success of upselling and cross-selling efforts, while NRR measures the overall health of the customer base. Which metric is more important for your business depends on your business model and goals. By understanding the differences between these two metrics and how they're calculated, you can make more informed decisions about how to drive growth and improve customer retention.