[1/7]"The Rise of ‘Retention Rates,’ the Software Metric Investors Are Obsessing Over"
Great, timely article. A few comments:
1-I lament that there is no universal standard for calculating NDR. We need standards for comparability/adoption. Regulators!
bit.ly/316guNq
Great, timely article. A few comments:
1-I lament that there is no universal standard for calculating NDR. We need standards for comparability/adoption. Regulators!
bit.ly/316guNq
[2/7]2-Weird how they discuss importance of revenue growth versus NDR. The latter drives the former. Would be more conceptually distinct to compare gross customer acquisition [units or acquired MRR] vs NDR.
3-While good, NDR isn't great for many reasons:
3-While good, NDR isn't great for many reasons:
[3/7]3a-What about the C3? Dominates NDR because it's cohort-specific. Article mentions an issue with Twilio. Issue solved w/ C3. Need an article on C3's! (wait: bit.ly/2kpqf7p)
[4/7]3b-NDR mashes together churn with monetization. Both important/distinct. Need to supplement with active customers and new customers acquired to have the data required to triangulate a model that makes this distinction.
[5/7]4- Irony: the more you enhance NDR, the more back end loaded the payment profile of your CFs, making valuation sensitive to perceived changes in LT competitive position and discount rates. Akin to duration risk in fixed income, as I've said before. Shifts risk profile.
[6/7]5- To understand the underlying framework behind customer-driven valuation for subscription firms, read my seminal paper with @faderp about it: bit.ly/2N8P3sq
[7/7] All told, great to see investors waking up to the importance of customer metrics and their role in valuation. It's a cause that we/@rgmarkey and a growing chorus of other investors are waving the flag about. It's a revolution...
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