Renewal rate

For a business selling subscriptions or annual contracts, renewal is where the revenue is secured or lost. A business that renews 90 per cent of contracts is worth more than one renewing 70 per cent, even at the same pace of new sales, because less of the sales effort goes into replacing what was lost. A falling rate is also an early warning that the product is not solving the problem, a competitor is biting or the price no longer matches the value.

• Track it by cohort and customer segment. A healthy overall number can hide one segment renewing well while another struggles.
• Measure by count and by value. Losing small accounts hurts less than losing one large one.
• Build a view of contracts expiring in the next ninety days so risk is seen before the renewal conversation.
• Flag accounts whose usage or satisfaction has dropped and contact them early, not at the end date.
• Record the reason for every lost renewal, such as price, a missing feature or a changed priority, and feed it back.

Renewal rate counts only the contracts that came up for renewal. If 40 annual contracts reached their end date in a quarter and 34 renewed, the renewal rate is 85 per cent. Customers in the middle of a term are left out, which is the difference from a general retention figure. It can be measured by contract count or by value, and the two can tell different stories.

• Mixing renewal rate with retention across the whole base, which dilutes the signal.
• Contacting the customer only when the renewal is due.
• Auto-renewing contracts and counting them as satisfied customers when they are simply inattentive ones.