What Are Good Renewals Metrics & KPIs?

You can’t improve what you can’t measure.

Customer success is a delicate balancing act between retaining existing customers and acquiring new ones. Understanding and leveraging renewals metrics and key performance indicators (KPIs) is essential for sustained growth.

Understanding Renewals Metrics

Renewal metrics are indicators that measure your ability to retain customers over time. These metrics are particularly relevant for businesses operating on a subscription model or those that rely on recurring revenue streams. At their core, these metrics provide insights into customer satisfaction, product value, and operational efficiency. By gaining an understanding of these metrics, you gain the ability to increase your customer satisfaction rates and in turn increase your retention rates.

These metrics also reflect data around the customer journey, where continuous improvement is necessary. Some metrics are indicators of the efficiency of the organization, and others are reflective of the customer experience.

These success metrics are KPIs that reflect “lagging indicators,” or the results after an initial action. To gain traction by changing these metrics, you need to understand the causation, to get to the root of these results. 

Renewals Metrics

Renewal Rate: 

This is the percentage of customers who choose to renew their subscription or service at the end of their contract period. A high renewal rate indicates strong customer satisfaction and product/service value. This metric reflects whether the customer is getting value out of your product or service. Effective renewals will also include opportunities for cross-sells and upsells.

Churn Rate:

 Inversely related to the renewal rate, this measures the percentage of customers who cancel their subscriptions within a specific timeframe. A lower churn rate suggests higher customer retention. Reducing and preventing churn is often a popular measurement for performance metrics.

Customer Lifetime Value (CLV)

CLV predicts the total revenue a business can expect from a single customer account throughout the relationship. Increasing CLV indicates improving customer satisfaction and loyalty.

Net Promoter Score (NPS):

Although not exclusive to renewals, NPS measures customer willingness to recommend your product or service to others. NPS is an indirect indicator of renewal likelihood. As a trailing indicator, this score shows actions in the past, so determining room for improvement will take additional analysis.

Revenue Retention Rate (NRR): 

This metric assesses the amount of recurring revenue retained from existing customers over time, accounting for upgrades, downgrades, cancellations, and pauses. At its core, retention is a health score for your company, where it not only shows a stable business, but the cost-effective ability to keep customers and align with customer business goals in the process as well.

Implementing Effective Strategies

To positively influence these renewal metrics, implement strategies that are focused on enhancing customer experience and value perception:

Personalized Engagement:

Tailor interactions based on individual customer data to increase engagement and satisfaction. Using a CRM helps to track these interactions, and to learn more about customer usage, behavior, and history. The companies that align customer expectations with product capabilities from the start will not only help to achieve business goals, but also win the race to retention.

Proactive Support:

Identify potential issues before they escalate into reasons for non-renewal by monitoring usage patterns. This all starts with onboarding and adoption. Start out strong with an engaged and trusting customer relationship so that there are fewer surprises and easier communication.

Value Realization:

Regularly communicate with customers about how they can derive more value from your product or service. This requires great communication with the customer to understand what is considered valuable. Is there a better way to encourage product adoption that will help to realize this value? Can you address those outcomes or objectives that are most important to this customer? This all contributes toward your customer’s value realization.

Customer Feedback Loops:

Use surveys and feedback channels to gather insights directly from customers about what works well and identify areas for improvement. Know that these lagging indicators might ultimately lead to behavioral as well as procedural change.

The Role of Technology

Optimize Your Human Capital:

Automation is key for helping your team focus on the big conversations. Utilize automation tools to handle the smaller, repetitive processes so that your team can drive success and customer engagement when and where it counts.

Renewal Automation:

Ensure that no account gets left behind by implementing renewal automation. Renewal automation ensures that every account gets proactive engagement around upcoming renewals. The sooner you remind your customers, the sooner they will renew. This also provides you with more time if there are any problems to be addressed, such as a customer who has not yet renewed.

Leveraging technology is paramount in tracking these metrics accurately and efficiently. Advanced analytics platforms enable real-time monitoring of customer behaviors while AI-driven tools can predict churn risk before it materializes. Integrating these technologies into your strategy allows for more informed decision-making processes.

Industry Benchmarks

Performance measurement is going to be as different as each company is unique. There is no SAAS magic number. So, consider the following KPI metrics as a loose guideline regarding the many moving targets of customer churn rate, SAAS renewal metrics, expansion revenue, and business processes, to name a few.

Churn Rates:

Established SAAS companies often aim for a healthy 5-7% annual churn as a benchmark. Earlier stage companies are going to likely have a lower churn rate than mature companies. This number is going to be dramatically different if measuring monthly churn in lieu of annual churn. 

With no standardized way to measure churn, it’s important to understand the measurement behind the rate. Churn is inevitable, and as your product matures, it should get easier to identify better customer/product fits, strengthen renewals and upsells, and reduce churn.

Renewal Rates:

A healthy renewal rate is the mirror of churn at 93-95%. Calculating the renewal rate and the churn rate can get sticky considering whether you choose to separate your metrics when it comes to auto-renew customers, or even partial churn. Whether you’re a startup or an established company, finding the right cadence to measure these metrics will come in time, with awareness of the similarities in your customer base, and a solution like Renewtrak that offers the best strategy for seamless renewals.

CLV:

Improving CLV improves churn, where increasing CLV usually increases revenue over time. It’s a metric that directly reflects customer loyalty and retention.

Net Promoter Scores:

NPS scores vary widely by industry, so finding a realistic goal depends on similar companies with comparable goals.

Net Revenue Retention (NRR):

The Net Revenue Retention (NRR) rate benchmark varies depending on company size. Like the previous benchmarks, it accounts for the balance of churn and renewal (account growth + renewal – churn = NRR). Small business should aim for 100% net negative churn, whereas enterprises can aim for 130% net negative churn.

Effectively managing renewals through observation of relevant metrics such as renewal rates, churn rates, CLV, NPS, and revenue retention rates will significantly contribute towards achieving sustainable growth in competitive markets. Businesses must adopt strategic initiatives centered around personalized engagement and proactive support to improve key metrics that reflect accurate measures of renewal.

Boost Your Renewals With Renewal Automation

Renewal automation provides you with a means to proactively engage with your customers to increase renewal rates and support customer success.

Visit www.renewtrak.com to request a demo or learn more!