What is a customer renewal rate and how can Customer Success teams use it? Let’s dig into some definitions, calculations, and examples.
What is customer renewal rate for SaaS?
Customer renewal rate is the percentage rate at which a company’s customers renew their contracts within a given contract period. This is a more specific calculation within the broader realm of customer retention.
How to calculate customer renewal rate with examples
Customer renewal rate is a relatively easy calculation. We’ve outlined two simple options below with examples and additional resources.
Customer renewal rate formulas and examples
1. Calculating renewal based on customers in a given time period
Formula to calculate customer renewal rate.
The first method is simple division – divide the number of customers remaining at the end of a contract period by the number of customers at the beginning of that contract period.
Example: If your company has 100 customers at the start of the year and 98 at the end, then your customer renewal rate was 98%.
2. Calculating renewal based on a percentage of churn rate
Formula to calculate customer renewal rate formula based on a percentage of churn.
The second method takes a percentage from your churn rate – depending on whether you have a positive or negative churn rate, your renewal rate will correlate.
Examples:
- If your churn rate is 2%, then your renewal rate is 98% (100% – 2% = 98%)
- Adversely, if your negative churn rate is -5%, then your renewal rate is 105%
Resource: Dig further into different renewal schedules and the nuances of measuring for renewal versus retention in our blog, “The crucial nuance behind seven top Customer Success metrics for SaaS companies.”
Customer renewal rate and overall customer retention
Are you meeting your customers’ needs and expectations consistently? Renewal rate can show how a Customer Success team is performing (whether excelling or falling short) to better inform strategy, budget and inter-departmental coordination.
Let’s review some actionable tactics for how customer renewal rate can tie into a broader customer retention strategy.
How to increase your customer renewal rate
A lot of these concepts will be familiar and cross-functional for a Customer Success team – use the following as a checklist or guide for staying on track and keeping renewals top of mind:
- Customer Success team ownership – are you tracking renewals in the first place? Ensure alignment and ownership is clear across CS, support, sales, and marketing.
- Customer acquisition cost (CAC) – track it and work towards lowering costs in conjunction with your sales and marketing teams.
- Customer lifetime value – this is a constant effort once your customer signs a contract. Keep things fresh and accessible via onboarding, product updates and feedback, and incentives for everything from referrals to upgrades.
- Target both happy and at-risk customers – is the renewal process simple and personalized to that customer’s needs? Conversely, the process should be straightforward for a customer whether they are upgrading, altering, or downgrading their contract.
- Monitor customer churn in tandem – consider this a companion metric to customer renewal rate, and work towards keeping a churn analysis running to stay on top of customer trends.
Additional resources on customer renewal rate and SaaS metrics
- Understanding the real impact of improving customer retention, webinar recap and Q&A featuring Rob Belcher from SaaS Capital and You Mon Tsang, ChurnZero CEO
- Customer Logo Retention from SaaSPlanner, detailing SaaS-specific case studies and the relevance of connecting renewals with churn rate
- SaaS retention benchmarks: How does your company compare? ChurnZero webinar featuring Rob Belcher, managing director at SaaS Capital
- 20 quick insights on Customer Success and SaaS metrics with Dave Kellogg, Dave Kellogg Consulting
- Key SaaS and Customer Success metrics you should care about with You Mon Tsang, CEO and co-founder, ChurnZero and Dave Kellogg, Dave Kellogg Consulting
- 2022 Customer Success Leadership Study, authoritative picture of the trends, priorities, challenges, and best practices shaping Customer Success
- Customer Success Maturity Assessment, tool from ChurnZero and Higher Logic