Retaining your SaaS customers is essential to keeping your business afloat. Consistent SaaS renewal rates come from strong customer relationships, positive user experiences, excellent customer service, and product engagement.
Understanding why customers churn versus renew will provide insight into retaining customers long-term.
We spoke with several SaaS company executives about SaaS renewal rates, and we’ll be sharing their responses at the end of this post.
First, let’s look at the value of reducing churn and how to increase renewals to build a successful business. Make sure to download the SaaS Renewal Calculator so you can leverage these insights on your own.
SaaS renewal rate is the rate at which customers renew their subscription for your company’s software. SaaS renewal rate provides insights into whether your customers value your software, are having a positive customer experience, as well as factors that are outside your control (such as financial issues).
Keeping existing customers is easier than finding new ones, and it’s less costly. That’s why it’s important to monitor your SaaS renewal rate.
Renewal rates can predict growth, measure satisfaction, and increase long-term customer retention.
What is a good renewal rate for a SaaS company? How to calculate your SaaS renewal rate benchmark?
Read on to learn more.
The customer renewal rate is a good way for startups with a homogenous client base to judge their product value. The customer renewal rate calculates the percentage of customers who renewed their subscription against those who may have renewed. The number is found by dividing the number of customers who renew by the number of customers up for renewal.
For example, if each customer renews, the rate will be 100%.
Customer renewal rate = [Number of customers that renew/Number of customers up for renewal] x 100
The revenue renewal rate is helpful for SaaS companies providing multiple services for a varied customer base. Revenue renewal rate is the ratio of revenue renewed against the entire amount of renewable revenue during a set period.
The revenue renewal rate is translated as a percentage. All renewable revenue is renewed when a revenue renewal rate is 100%. Sometimes a revenue renewal rate exceeds 100%, meaning some customers added to their accounts through upselling, cross-selling, or upgrades. A company with a revenue renewal rate higher than 100% is considered very financially healthy.
Revenue renewal rate = [Dollar value of renewal revenue/Dollar value of renewable revenue] x 100
MRR renewal rate tracks revenue from renewals within one month for consistent tracking. The MRR renewal rate formula is especially helpful for SaaS companies offering monthly subscriptions and businesses with monthly revenue goals.
MRR renewal rate = [Renewed MRR/Renewable MRR] x 100
Some of the most successful SaaS companies have renewal rates over 100%. The net renewal rate is the amount of renewable revenue generated, including expansion revenue. The net renewal rate is the ratio of total renewed revenue — including upgrades, upsell, and cross-sell — against the revenue due for renewal.
When companies have a new renewal rate greater than 100%, more revenue is collected from renewals and expansion than subtracted to churn.
Net renewal rate = [(Revenue renewed + Expansion revenue)/Revenue up for renewal] x 100
The gross renewal rate refers to the revenue collected from renewable revenue during a subscription period. It does not include expansion revenue. GRR can be expressed as the ratio of renewed revenue against the total potential renewed revenue. The GRR cannot surpass 100%.
Gross renewal rate = [(Renewal revenue renewed – Expansion revenue)/Revenue up for renewal] x 100
Renewal rate segmentation offers insights into renewal rates at a granular level, revealing a more precise vision of where most renewals — and lack thereof — lie. Businesses can apply these insights to their marketing plans to improve renewals in categories where they may be underperforming.
For example, a SaaS company is doing well and has a revenue renewal rate of over 100%. However, when looking at the renewal segmentation analysis, it’s apparent that their service is less popular among millennials. With this information, the company can create a millennial-focused marketing plan to communicate to this demographic how their product can fulfill their needs.
Different methods can increase your average SaaS renewal rate. Below are tried and tested strategies.
When looking to form a lasting relationship with customers, a good first impression is crucial.
Customers need to connect with your brand, understand how to use your product, and recognize its value. Supporting clients with a curated onboarding program can help foster greater product connection and satisfaction.
With thorough onboarding, users are more likely to use your software effectively — and renew their subscriptions.
Understanding how people in similar industries, verticals, and circumstances have benefitted from a product can boost the perceived value. Engagement and usage can increase when customers see how beneficial and approachable the product is, which translates into SaaS renewal rates.
To boost renewal rates, you need to think about how different people and teams use your software. A user relationship management platform can help you identify customer trends and even send in-app messages to users who appear to need help with a feature or function of your software.
Customers who seldom use your service may not see its full value. Identifying potential churners and observing their behaviors can help you craft a solution for reengagement.
Your client may be looking for a resolution in the wrong place and merely need further product guidance. When customers understand how to fully utilize your product, they’re more likely to renew; thus, raising your average SaaS renewal rate.
Clients who appreciate the value you provide can offer remarkable insights into what you’re doing well and what you can improve upon. Furthermore, customers love to feel valued, so reaching out for their opinions can strengthen relationships.
Approach customers who regularly renew and rarely submit support tickets, as these are the ones who likely enjoy your product the most. Ask clients about their favorite features, top priorities, major pain points, and potential improvements they’re hoping for. Maintaining relationships with existing customers is easier than finding new ones.
Promotional discounts and special pricing makes customers feel like they’re getting a high-value product at the best rate. Offering discounted rates shortly before expiration dates or re-engaging customers who’ve recently canceled with promotional pricing can increase your renewal rate.
Involuntary churn from SaaS companies often stems from credit card payment failures. Customers that intend to renew might forget their credit card expiration date or neglect to update the card on file. Most credit cards expire every three years, meaning 33% of subscriptions could lapse each year from expired payment methods.
Review customer data in your CRM frequently and alert customers when their payment source is about to expire.
Creating a standardized procedure for locking in renewals is key to success. In addition, renewals need to feel as effortless as possible on the client-side, so there are zero reasons for churn.
Now it’s time to share the responses we gathered from SaaS company leaders and managers. Let’s take a look!
Dryrun | CEO + Co-Founder
As Dryrun moves into different markets and bigger firms, we make sure to identify a product 'champion' onsite for whom modeling and managing cash flow in our software is a snap. Implementing this way creates a safe and comfortable environment for later adopters and helps our renewal rates.
Qualaroo | Product Marketing Manager
Retaining customers is tricky but cheaper than acquiring new ones. There can be many factors why customers don’t renew their subscription with a SaaS business. They may not be comfortable continuing with the pricing, may have found a better alternative, are not satisfied with your product's features, don’t have faith in your customer support service.
The best way to know what kind of experience you offer and how satisfied your customers are with you is by asking them when they are still your customers. A customer experience and feedback tool like Qualaroo is best for asking the right questions to the customers at the right time.
You can conduct pop-up surveys to collect in-context customer feedback which can help you resolve issues your customers have so they feel motivated to renew their subscriptions.
You can conduct customer satisfaction surveys, NPS surveys, and Customer Effort Score surveys which help you track crucial metrics that tell you which customers are a flight risk to create strategies to retain them.
Happeo | VP of Customer Success
We believe that a customer who sees a tangible impact of Happeo on their organization's effectiveness is more likely to renew. Rolling out a social intranet that is fully embedded in the end user's workflow is not done overnight. That’s why the Customer Success team works closely with customers after the initial implementation of the platform to ensure we support customers along this journey. By sharing best practices, running platform deep dives, audits, and creating success plans, we ensure the business objectives around the tool are measured and met.
The Happeo maturity model is used as part of the storytelling for customers to show progress in their journey. We use it to drive the next steps and action from our customers. We have identified different tipping points that move customers along the maturity model. These are used to identify where the customer is on their journey and what steps they should take in order to improve their internal comms and knowledge management.
Ziflow | Director, Client Services
One tactic I use is creating a partnership based off shared accountability. Not enough SaaS companies take ownership directly with their customers. In my experience, many SaaS companies will onboard customers and leave them to their own devices to be successful. A QBR is not enough to create a strong partnership that leads to a renewal. Finding a way to share the accountability of success or failure helps build trust and creates a narrative of "we" rather than "you" or "I." I've found this tactic makes it difficult for customers to leave because if they do, they feel they are leaving a member of their team behind not just a tool.
Close.com | Director of Customer Success
In my experience, there hasn't been just one strategy or tactic that has improved renewal rate over time. Instead, it's required a mindshift over time of thinking about the customer, our relationship with them, and what our goals are for the relationship. As a customer success team, we're consistently asked ourselves the long-game question, "How can I make this customer more successful?" and then we work to deliver on whatever strategy will do that. When we put the success of the customer first, the renewal comes organically because we've removed roadblocks and solved for problems that have resulted in real value for our customers.
What we always seek to avoid is becoming reactive and not prioritizing the relationship over time. You can tell that this is happening if top of mind the question is instead, "How do I close this renewal deal?". With this question, it's too late to make the customer successful. We're focusing on the short-term value-add which creates deals where the terms are less beneficial, where a team is relying on discounts or add-ons to make up for the value that wasn't given to the customer during the contracted-for period.
If a team is only asking themselves how to close the deal in the short-term, it's time to change the discussion with the customer. Ask about their goals, why did they pick your product in the first place, what's stopping them today from realizing what they originally envisioned. Help your customer prioritize those goals and then be realistic with them and yourself about what you can help solve for. Avoid 'checking-in' 3 months before a renewal to see if the customer is likely to stay onboard and instead show consistent progress or improvement over time on these goal priorities. This will change the conversation entirely.
Vocal Video | VP Customer Success
Promoting customer stories. Putting time and energy into marketing to customers has been a through line throughout my career, and one I've seen pay off multiple dividends including increased renewal rate. Your customers renew when they realize value from your product, and one of the easiest ways to help them connect the dots on usage is to promote the wins of your best customers. Customer examples can often surpass technical help articles in terms of driving engagement and usage - which equal value.
Callbell SAS | Growth and Marketing
From Callbell, we began to apply a customer-focused strategy to achieve the highest percentage of retention and renewals. Basically, our support team investigates the particular case of each client who is at the renewal deadline and they communicate in a personalized way to discover how they feel about the service we provide, what they would like us to improve, what others similar services would you consider and in general how we could help you scale your business.
These types of actions in particular have slightly increased our retention and renewal rates and have strengthened the relationship we have with each of our clients.
SPOTIO | Head of Customer Experience
This one might seem obvious but over communicate. Both internally with my team & externally with our customers. When we are within 90 days of renewal, we are hyper focused on ensuring we know where we stand. Customer Success Managers clearly communicate the ROI our solution provides & ask customers to share their thoughts on continuing their partnership with us early so we have plenty of time to adjust if we are off track in any way.
FlexMR | Chief Marketing Officer
It's true that any good relationship starts on the right foot. It's especially important for SaaS relationships, which can often be low touch and self-serve. To instill a shared sense of vision and raise renewal rates, FlexMR implemented a 12-week onboarding programme which includes a mixture of technical setup, training and strategic direction setting. These themes can then be returned to by our account development and client success teams throughout the year to help drive closer connection and greater value.
Piwik PRO | Chief Revenue Officer
The contract renewal is a binary outcome of a very complex process. Since our solution, a privacy-friendly analytics suite can be delivered on Cloud / Private Cloud or installed on the customer servers; it starts with service delivery. After that, there is onboarding and training; and after that ongoing support and maintenance. There are 7 teams that are directly involved.
The single most important thing we have done to improve renewal rates was alignment of the communication channels between clients and teams. We have started with limiting toolset used for communication with the customers - everyone has access to previous tickets, feature requests, and business conversations - there are no knowledge gaps.
Because a great number of customer cases were discussed on Slack via private messages, we decided to create a separate channel for each customer (or segment in the case of smaller accounts). This minor change resulted in faster response times, a deeper understanding of customers’ needs, and better relationships.
Contently | VP Customer Success, Strategy and Operations
We performed a massive customer segmentation project and realized that we needed to align customers perceived value prop with their CS person's strengths and background. Once we aligned those things, we saw an immediate uptick in the CS/Customer relationship. Developing trust takes time, but this was a terrific first step.
This post was originally posted on the parlor.io blog. It was rewritten and moved to the Parative blog after the company rebranded in 2022.