Date created: Oct 12, 2022 • Last updated: Oct 12, 2022
What is Renewal Rate?
Renewal rate tracks churn and retention down to the month of invoicing. Rather than track churn and renewals against your total customer count, you track renewals based on each cohort of monthly invoices.
Renewal Rate Formula
How to calculate Renewal Rate
If you send out one hundred invoices for January renewals, you track who paid their invoice and who churned against the January renewals, not against your total customer count. If five customers churned, your January renewal rate is 95% (95 renewed / 100 invoiced customers).
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How to visualize Renewal Rate?
Renewal Rate works best when tracked as a line chart. This lets you observe monthly, quarterly, or yearly changes in trend which you can then use to plan your future renewal strategy.
Renewal Rate visualization example
ChartMeasuring Renewal Rate
More about Renewal Rate
Although the renewal rate is somewhat of a historical metric, it may help identify an early downward trend in renewals. The downward trend may be masked when tracking only aggregate churn and retention. It’s much easier to identify a pattern when isolating the five customers churning out of one hundred customers in a given time period versus five customers churning out of one thousand total customers.
Organizing your renewals by month or quarter benefits your account management and customer success teams. These teams can gain forward visibility on upcoming renewals by month and the historical renewal trends. Each team can prepare for upcoming renewal discussions and/or potential customer expansion opportunities. Because a single month of renewed customers is a blend of multiple customers, you could argue that renewal rate is too generic and backward-looking. To make the renewal rate more powerful and predictive, use other SaaS metrics such as Upsell Rate and Propensity to Renew.