Zebeth Media Solutions

The Exchange

You shouldn’t skim over gross dollar retention • ZebethMedia

Welcome to The ZebethMedia Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily ZebethMedia+ column where it gets its name. Want it in your inbox every Saturday? Sign up here. For SaaS companies, net dollar retention is on investor radar more than ever. But it shouldn’t eclipse gross dollar retention: If you are not tracking both metrics, you could be fighting to add new customers into a leaky bucket. Let’s explore. — Anna Gross dollar retention is “what protects you during really challenging times” “Gross retention really speaks to the true stickiness and health of your customer base. It’s what protects you during really challenging times,” growth stage VC Rene Stewart said in a sponsored talk at ZebethMedia Disrupt in 2021. And yet, the co-head of Vista Equity Partners’ growth-stage Endeavor Fund added, most VCs she talked to “probably only care about net retention.” However, her comments were made in 2021, not 2022. “Challenging times” have come upon us since then, making investors and founders more mindful of business fundamentals. Alex and I have already written about the importance of net dollar retention when efficient growth is the new holy grail. But how does it differ from gross dollar retention, and how has the latter been faring at most tech companies? Let’s dive in.

Why not both? • ZebethMedia

Welcome to The ZebethMedia Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily ZebethMedia+ column where it gets its name. Want it in your inbox every Saturday? Sign up here. The recent OpenView-Chargebee 2022 report had SaaS benchmarks as its focus, but also touched in passing on a topic I’ve been curious about: reverse trials, a pricing model that offers SaaS companies a middle ground between freemium and free trials. Let’s explore. — Anna A binary choice? As more SaaS companies adopt product-led growth (PLG), a sales method in which user conversions are driven by the product itself rather than a sales team, founders are often faced with a pricing model dilemma. If their startup opts for a freemium model, most users will never get a taste of the premium features reserved for paying users. But if the company offers a time-limited free trial, users who don’t become customers at the end of that period might be gone forever. There are many other pros and cons to freemium and free trials. As OpenView partner Kyle Poyar told me, “freemium models tend to drive more acquisition and more signups to your product, for example, while free trials have fewer signups but have a higher conversion rate from free to paid.” As a result, founders often think they are facing a binary choice, Poyar said. In an interview, Airtable head of growth Lauryn Isford told him that these two choices are often thought of as prioritizing user growth (with freemium) or revenue growth (with free trials.) Poyar, however, doesn’t think freemium versus free trials is the only alternative. For companies to “get the best of both worlds,” he and OpenView advocate for the reverse trial model, exemplified by Airtable. But what are reverse trials all about, and are they for everyone? Psychology 101

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