Customer renewal rate

Mastering Customer Renewal Rate Calculation for Unlimited SaaS Success

Let us dig straight into the meat of this blog: customer renewal rate is way of determining the imprint of customers who renew their subscriptions to your product or service. In this blog, keeping this context in mind, we will be going over the basics of what is customer renewal rate (including a concrete formula for customer renewal rate calculation), its importance to SaaS businesses, certain key factors to keep in mind that affect it, after which we will offer tips on how to calculate it more accurately.

What Is Customer Renewal Rate?

It is the percentage of customers who stay with you after their subscription period ends and is calculated using the following formula:

Customer renewal rate = Number of Renewals / Total number of customers x 100.

Understanding Why Customer Renewal Rate Is Important and Key Tips to Boost It

Every SaaS company must understand their renewal rate. And poor renewal rates are the result of a variety of issues, ranging from poor pricing strategy to poor user experience. This is why more precise revenue forecasts translate into more precise sales and marketing budgets and reduced wasteful spending.

Secondly, by monitoring individual customer satisfaction, also known as customer health, you can proactively engage with customers who are at a higher risk of leaving your business, increasing the likelihood that those accounts will be saved and your renewal rate will remain high.

Read more: Retention Rate Vs Renewal Rate—Drive Growth By Optimizing the Real Game Changer

Key Factors That Affect Customer Renewal Rate:

If we go a little further, we must see that pricing is the marker that can have an impact on all four of the factors and the common denominator. There are other factors too which are as follows:

1. Knowing Your Customers: Knowing your customers is essential for retaining them. And I mean really getting to know them—not just broad personas, but a thorough understanding of their needs, value drivers, and willingness to pay.

You will be able to set your pricing to provide maximum value and match your pricing structure to your customers’ specific needs once you know what they actually need from your product. All of this simplifies your customers’ lives—and makes the decision to renew even simpler.

2. Narrowing Down on the Success of Each Customer: Nothing pays off more for your SaaS company than helping your customers achieve their goals. This is why it is important to focus on customer success. By doing this, you actually improve every aspect of your company, be it reducing churn, increasing renewals, or even growing expansion revenue.

3. Personalizing Customer Interactions: You can increase the chances of your customers renewing their subscriptions by communicating with them in a personalized way. For example, you can send them emails that match their interests and preferences, or offer them special deals based on their actions. This way, they will feel valued and engaged and are less likely to cancel your subscription.

How to Calculate Customer Renewal Rate More Accurately?

Here is a step-by-step breakdown of how one should go about in order to more precisely calculate the customer renewal rate:

1. Establish the time frame that you wish to use to gauge the customer renewal rate. This could occur every month, three months, a year, or at any other regularity that suits your company.

2. Determine how many clients were in active status at the beginning of the period. These are your current clients who were given the option to extend their agreements or subscriptions with you during that time.

3. Determine how many of your clients extended their contracts or subscriptions during that time. These are your loyal clients who have made the decision to stick with you.

4. Divide the total number of current customers by the number of retained customers to get the percentage of customer renewal rate. Then, multiply the result by 100.

If you had 100 active customers at the start of the year and 80 of them had renewed their contracts or subscriptions with you by the end of the year, your annual customer renewal rate would be as follows:

Customer renewals equal (80 / 100) x 100, or 80%.

Read more: Important Customer Retention Statistics for 2023

How to Use SubscriptionFlow to Increase Your Customer Renewal Rate?

SubscriptionFlow is a formidable subscription and retention management system. Here, users can keep an eye on customer data, retrieve it from customer data centers, analyze it, and view reports that the system generates on its own. Possessing such a deep understanding of customer data will enable you to identify opportunities for product enhancement (and work on PLG). Additionally, as was already mentioned, product-led growth aids in both attracting new clients and keeping hold of current ones.

Book a demo with SubscriptionFlow now to supercharge your customer renewal rate!