Propensity to Renew
Date created: Jul 15, 2020 • Last updated: Aug 7, 2020
What is Propensity to Renew?
Propensity to Renew is a measure of the likelihood a customer will renew their contract instead of terminating their engagement with a company, most often provided by the customer as part of a survey. It is an indicator of revenue risk and potential logo churn.Alternate names: Churn Risk, Likelihood to Choose Again
How to calculate
If 20 of your customers answered a Propensity to Renew survey question, asked on a 5 point labelled scale, and 12 of those said they were either Extremely Likely or Very Likely to Renew; then your Propensity to Renew score is 12/20*100= 60%.
Propensity to Renew
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What is a good Propensity to Renew benchmark?
External benchmarks for this metric are unreliable as companies ask slightly different survey questions and use different scales. However, the percentage can be compared to internal and industry standards of actual churn.
More about this metric
Propensity to Renew is a measure of the likelihood a customer will renew their contract instead of terminating their engagement with a company. It is most often collected through a customer survey, along with other measures that assess expected behavioural loyalty indicators, such as propensity to increase spend, propensity to add more products/solutions, and propensity to recommend.
At an aggregate level, it is an indicator that is reviewed by executives to provide a forward-looking view of potential revenue risk and potential logo churn. At a customer level, it is an indicator reviewed by account managers and/or customer success leads as they work to secure renewals.
Because the metric is provided by the customer, and in more complex relationships, from multiple contacts within a customer account, it can highlight risk that may be masked by relying on more standard operational predictors of churn such as customer complaints or late payments. For example, a customer may report a lower propensity to renew because of knowledge they have of other changes in the business, such as a consolidation of suppliers or new executive direction. In instances where the customer-provided risk is higher than expected, a review of the metric early enough in advance of the renewal date can allow for effective intervention strategies and saved business.
Note that Propensity to Renew is considered an outcome measure, so while it serves as a leading indicator for risk, it is a lagging indicator of poor customer experiences in one or more of the day-to-day interactions a customer has with your product or your people. Low or declining scores should trigger a deeper analysis of underlying experiences to identify and remediate weak spots, either for an individual customer or more systemically.
As companies build time-series data for this metric, it should be aligned with actual renewal data to enable more predictive modeling of risk.
When to use it As part of a cadenced review of business and/or account health. At the business level, at least quarterly; at the account level, typically 60-90 days pre-renewal date.
How to gather it This metric is most often gathered through a regular voice of customer survey, in cases where your customers have a defined renewal date. Best practice is to survey one quarter prior to the renewal date to inform the strategy for renewal and position for growth.
Keep it simple. Ask a question like: Based on your experience over the last six months, how likely are you to renew your contract?
Provide clear response options. I recommend a 5-point labelled scale, which has been proven to have less variation in the interpretation of responses, such as: Extremely Likely, Very Likely, Somewhat Likely, Not Very Likely, Not At All Likely. You may prefer a 7-point Likert scale (a range from 1 to 7 where 7 is the most likely to renew), or for a more binary view, reword the question to elicit a Yes/No answer. Best practice is to ensure the scale you use aligns with other scaling in your survey - this makes it easier for customers to respond, and easier for employees to interpret results.
Sample survey question Based on your experience over the last 6 months, how likely are you to renew your contract with?
- Extremely Likely - Very Likely - Somewhat Likely - Not Very Likely - Not At All Likely - Decline to Answer