What is Customer Renewal Rate?
Renewal rate is the percentage of customers who extend their subscriptions or contracts when they expire.
It tells you:
- How many customers actively choose to stay
- The strength of your customer relationships
- The effectiveness of your product/service
- Customer satisfaction levels
👆 By the way, an interesting fact: Studies show that increasing renewal rates by just 5% can boost profits by up to 95% in the long term! This is why SaaS companies often focus more on renewals than new sales.
How to Calculate Renewal Rate
Renewal Rate Formula
Renewal Rate = (Number of Renewed Customers / Total Number of Customers up for Renewal) × 100
Example Time! ✨
Let’s say:
- 100 customers were up for renewal
- 85 customers renewed
- Renewal Rate = (85/100) × 100 = 85%
Renewal Rate Formula in SaaS
In SaaS, we often look at renewal rate from two angles:
- Customer Renewal Rate 👥
CRR = (Renewed Customers / Total Customers up for Renewal) × 100
- Revenue Renewal Rate 💰
RRR = (Renewed Revenue / Total Revenue up for Renewal) × 100
Pro Tip: Revenue renewal rate is often higher than customer renewal rate because customers might upgrade during renewal! 🚀
The Difference Between Retention and Renewal
These terms sound similar but they’re different! Let’s break it down:
Retention Rate 🔒
- Measures ongoing customer relationships
- Calculated continuously
- Includes all active customers
- Focuses on preventing churn
Renewal Rate 📝
- Measures specific renewal decisions
- Calculated at contract end
- Only includes customers up for renewal
- Focuses on contract extensions
For Example:
- A customer who stays subscribed month-to-month affects retention rate
- A customer who signs up for another annual contract affects renewal rate
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