It costs up to 7 times more to attract a new customer than to retain an existing one. Data also shows that your existing customers are also more likely to buy more from you than new ones!
The equation is straightforward: the longer a customer stays, the more revenue you generate. Even a slight boost in customer retention can lead to substantial profit increases. Studies indicate that a 5% improvement in retention can result in profit spikes ranging from 25% to an impressive 95%.
While acquiring new customers is desired, retaining existing ones is crucial. In the realm of SaaS, a robust strategy for customer retention is key. This is where the SaaS renewal process plays a pivotal role.
In this blog we will cover:
In B2B, SaaS renewal is when your customers decide to extend their subscription for another term despite having the option to leave. When a customer renews, they decide to keep receiving value from you for the next subscription period, whether it’s done automatically or manually.
Renewals play a pivotal role in the financial health of a SaaS company. As these businesses thrive on recurring revenue, retaining existing customers through successful renewals is critical for maintaining and ultimately growing revenue streams.
As mentioned above, acquiring new customers can be a costly endeavor for a SaaS company. When you allocate your budget towards retaining existing customers, you’re more likely to grow these accounts so you’ll see a much higher return on investment.
Renewals directly influence Customer Lifetime Value (CLTV), a metric representing the total revenue a business can expect from an average single customer account. A higher SaaS renewal rate drives an increase in CLTV. A critical ratio used to measure value creation in a business is CLTV/CAC. Businesses should be aiming for a ratio of 3:1 or greater, thus implying you are making 3 times on what you spent to acquire the customer.
“If you can’t measure it, you can’t improve it” – to achieve success and growth you need to define which Renewal KPIs to track.
Naturally, the first metric to track would be – The renewal rate: It measures the percentage of customers who renew their contracts at the end of their subscription period.
Renewal rate is different from retention rate; as renewal refers to the measure of customers who actively choose to renew.
While retention rate, refers to customers who had chosen not to cancel their subscription even when they had the chance to. This could either be an automatic decision or an active decision on their part to renew the contract.
Other Renewal metrics we recommend focusing on tracking:
In-quarter Rate (IQRR): The percentage of opportunities expiring in the current quarter. It captures the most accurate measurement for better tracking and analysis.
Contract Value: The percentage of growth for each customer account.
On-time Renewals (OTRR): The percentage of renewal contracts completed before the expiration.
We will review all renewal KPIs in another blog post but for the sake of this blog we will focus on renewal rates.
Having a renewal rate higher than 85-90% is considered pretty good in the SaaS world. But the top-notch SaaS companies go even further with a revenue renewal rate as high as 95%.
So how do you achieve these high renewal rates?
Struggling to boost your renewal rate? Firstly, the customer has to LOVE your product. But there are also some fundamental SaaS renewal strategies to encourage your subscribers to renew their contracts:
If your current renewal methods aren’t achieving the desired renewal rates or you are spending too much time on manual efforts, it might indicate issues with your SaaS renewal process.
The following are actionable and proven SaaS renewal process best practices that could make a positive impact:
Prepare Your Customers to Succeed:
Share customer success stories to demonstrate your product’s value. Continuous education helps customers apply your solution effectively in their everyday work.
Detect Churn Before It Happens:
Keep an eye on signs of churn, such as increased help desk tickets or reduced logins. Address issues promptly to prevent customer departure. Use tools that are able to catch these signs early.
Engage Decision-Makers:
Depending only on one POC can be risky, the more you connect with decision-makers the better. Explore additional ways to contribute to customers’ success and remove friction. Renewtrak allows all decision makers to get visibility into renewal quotes without needing to login.
Prevent Unintentional Churn:
Credit cards typically expire every three years. This means that approximately one-third of your subscribers’ credit cards are likely to expire each year. The sooner you catch this the better, that’s why renewal notification should start as soon as 180 days. On top of that, there are tools that can catch this for you.
Perform Renewal Research in Advance:
With renewal automation tools like Renewtrak you can access the dashboards, see accounts that have a lower likelihood to renew, and identify which customers need more attention and identify areas for improvement.
Acknowledge the Renewal 180 Days Prior:
Inform customers about the upcoming renewal period and discuss how your company plans to support their goals. This is also the time to plant the seed for future growth (upsell/cross-sell). If you’re using a renewal automation platform like Renewtrak, this will be done automatically for you!
Remove Friction:
Provide clear information on the renewal process with multiple options, such as automated renewal or self-service. Ensure customers know their choices and help them decide the best option for their needs. Allow them to self-select the best options and self-checkout.
Send Out a Friendly Reminder:
Remind customers to renew through email or in-app notifications. Highlight upcoming feature releases, loyalty bonuses, or discounts to add value to the renewal.
Say Thank You:
Express gratitude for customers’ renewal, reaffirm commitment to their goals, and offer personalized suggestions to enhance the value of their subscription.
Utilize a tool that can do all of the above with a click of a button. If you want to delight your customers with the best renewal experience, and give time back to your staff incorporate Renewtrak into your daily work flow.
Ready to get started? Try Renewtrak for free today!