Jan 10, 2021 · 49m · saastr
Churn is dead. Long live Net Dollar Retention Rate with Dave Kellogg | SaaStr Software Community
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Dave Kellogg deconstructs traditional SaaS business metrics, exposing the mathematical flaws and ambiguities of churn while demonstrating why Net Dollar Retention (NDR) is a superior cohort-based benchmark for evaluating customer base health and enabling financing.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
Jason as informed peer 0.0 Guest teaching 0.0 Guest disagreement 1.6 Jason pushing back 0.0
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 32:00 Dismissal of uncontrollable churn
Kellogg strongly rejects audience categorization of uncontrollable churn, arguing that blaming client acquisitions or new CFOs is often an excuse masking poor product adoption.
Hardest push from Jason ▶ 34:00 Audience question on mid-contract churnAn audience chat question challenges Kellogg's model by asking how to handle cancellations during multi-year contracts, forcing him to address contract breaches and bad debt.
Biggest teaching moment ▶ 23:30 Deconstructing churn metric pollutionKellogg provides an in-depth tutorial on how four different calculation methods distort LTV and CAC metrics, rendering traditional churn rates misleading.
Jason holds their own ▶ 35:00 Resolving contract default accountingIn response to audience pushback regarding mid-contract dropouts, Kellogg walks through the accounting treatment across ATR, adjustments, and churn categorization.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| Deconstructing the SaaS P&L and Business Duality | 0 | 0 | 1 | 0 | Monologue presentation where Dave Kellogg breaks down the duality of SaaS profit and loss statements between recurring revenue and customer acquisition. The host is entirely passive with zero interaction. | |
| The Leaky Bucket and Core SaaS Unit Economics | 0 | 0 | 1 | 0 | Kellogg lectures on the SaaS leaky bucket model, CAC ratios, and unit economics calculations. Minor interjections from background participants occur without substantive host participation. | |
| The Trouble with Churn: Calculation Ambiguities and Downstream Pollution | 0 | 0 | 2 | 0 | Kellogg details the structural ambiguity and manipulation in churn formulas and their downstream damage on lifetime value metrics. He delivers a structured solo lecture with no host pushback. | |
| Interactive Q&A: Churn Nuances, Cost Allocations, and Contract Defaults | 0 | 0 | 3 | 0 | Kellogg conducts an interactive audience Q&A from the chat, rejecting concepts like uncontrollable churn as executive cop-outs and dissecting mid-contract defaults. No formal host moderation occurs. | |
| Cohort Analysis and Net Dollar Retention Rate | 0 | 0 | 2 | 0 | Kellogg introduces cohort analysis and net dollar retention rate, calling out companies that introduce survivor bias into their retention metrics. Monologue format continues. | |
| Operationalizing NDR and the Rise of Remaining Performance Obligations | 0 | 0 | 2 | 0 | Kellogg contrasts legitimate pre-sold contract expansion with manipulative price ramping and explains remaining performance obligations. Monologue presentation throughout. | |
| Summary Takeaways and Concluding Remarks | 0 | 0 | 0 | 0 | Kellogg summarizes the key takeaways of the presentation and closes with concluding remarks to the audience. |
Statements from this episode (20)
Kellogg: Net dollar retention measures customer base health better than churn
“Net dollar retention, which I think is actually a more effective way to get at what churn is trying to measure.”
Kellogg: Ability to raise money separates winners from losers in Silicon Valley
“The ability to raise money is what separates the winners
From the runners up and the losers.”
Kellogg: Every SaaS CEO should use a driver-based financial model
“I think every CEO should have a driver-based model where you play with sales productivity, sales turnover, sales ramp time, marketing is a percent of sales, cost per sale. You put these various drivers in and you can see what happens to your business, see thei…”
Kellogg: Expansion ARR CAC is roughly 40% of new customer acquisition cost
“By the way, it does grow at 40% of the cost of new logo customer acquisition. If you look at the customer acquisition cost ratio, for example, in the key bank survey that I'm citing down below, you'll see that the expansion CAC or the customer acquisition cost…”
Kellogg: Ending ARR and growth rate suffice for rough SaaS valuation
“In fact, if you only had two numbers to give you the value of a SAS company, it would be ending ARR and growth rate. I could then tell you roughly what that company is worth kind of a first order valuation.”
Kellogg: Expansion ARR should represent 20% to 40% of new ARR
“To me when it's less than 20%, maybe you're not exploiting your expansion opportunity much, as much as you should be. When it's over 40% maybe you're not getting as much new logo as you should be, right? So, so I personally like it running in the twenties and …”
Kellogg: SaaS CAC ratio averages 1.3; over 3.0 becomes uninvestable
“So I like the CAC ratio very important SAS metric, you know, typically runs around 1.3, you know, below 1.3 is getting to be quite good. Below one is really good. Best I've ever seen was .4. Anything between 1.5 and two people start to scratch their eyebrows a…”
Kellogg: Operators prefer unbundled metrics over CAC payback to isolate issues
“VCs in general kind of like all-in-one metrics because they're trying to make an investment decision. I always feel like operators don't love these metrics as much because if it's too high, I don't know which side of it is broken, right? If my CAC payback peri…”
Kellogg: PE firms recalculate all SaaS metrics from raw data
“In the VC side, frankly, I don't see as much recalculation, but when you meet PE people, they will literally take all your financials and just recalculate everything. You know, you're going to say your churn is, you know, only 10%. They're like, well, we'll fi…”
Kellogg: ARR is a fact while churn rates are an opinion
“There's a semi-famous quote that but cash is a fact, profit is an opinion. I feel the same way about ARR and churn, that ARR is a fact churn, And churn rates are an opinion.”
Kellogg: Calling SaaS Churn Uncontrollable Is Often an Organizational Cop-Out
“So to me, controllable versus uncontrollable churn, it is a concept people talk a lot about. But I get super uncomfortable because I think it could easily be a cop out, right? You know what? Like my last company, they got a new CFO and they didn't renew. We ca…”
Kellogg: Customer Success Belongs in Sales Rather Than COGS
“Customer success, in my opinion, does not belong in COGS. They, it belongs in sales. And most companies will put customer success in sales.”
Kellogg: SaaS Companies Experiencing Mid-Contract Churn Should Stop Multi-Year Deals
“To a certain extent, I'd also stop doing multi-year deals, because if you're giving someone a price lock for a multi-year deal and they're not renewing, you gave something and got nothing.”
Kellogg: 2020 SaaS IPOs Averaged $330M ARR, 49% Growth, 120% NDR
“The average one had three hundred and thirty million in ARR, 49% revenue growth, and a 120% net dollar retention.”
Kellogg: Net Dollar Retention Shows Almost Zero Correlation With SaaS Multiples
“The R squared is only .O six between net dollar retention and enterprise value to next 12 months revenue.”
Kellogg: NDR Is a Financing Enabler, Not a Valuation Driver
“So it's not a valuation driver. I now think of it as a financing enabler, right? Okay. So a higher one isn't necessarily by itself going to drive a higher valuation, but I could tell you if you don't have a high enough one, you're not going to be able to raise…”
Kellogg: SaaS ARR Growth Correlates to Valuation Multiples at 0.5 R-Squared
“The R squared between ARR growth and enterprise value multiple Is a .5”
Kellogg: ASC 606 flattens price ramping into straight-line GAAP revenue
“It will drive on an ARR basis, epic net dollar retention, but on a revenue basis, ASC. So six will flatten it out. It will see right through this trick and you will just end up with a 120 K per year in gap revenue.”