The key activity that is important to good execution of customer success is the renewal process obviously. And this goes without saying that whether it is the customer success team that’s managing it or another part of your organization, it is very critical. Having a standard process of renewal analytics and forecasting user growth is an equally challenging endeavor but one that will ensure an increase in MRR for your organization.
So you have to make sure that your customer has a good experience and that you’re getting to the roots of everything that you need to to make sure that it’s seamless and ultimately that you’re driving that right outcome.
Renewals & Renewal Analytics are critical in support of LTV
Renewals are critical, but they support the lifetime value of a customer and so for those of you who are privy to a lot of the organizational metrics that your business is managing you’re going to hear things like customer lifetime value and customer acquisition costs and this is where that continued subscription, that revenue is so critical.
Because if you think about the cost to acquire a customer, there is a cost of bringing a customer into your business and it does likely take longer than a one-year term to recoup that revenue. This means if your customers are not renewing after their initial year subscription you’re likely losing money.
So this is a reason why renewal is important; the other thing is that the higher the lifetime value of a the better it is for the business. If you’ve heard that analogy like the leaky bucket, you can’t keep bringing customers onboard only to lose them out the back. It is really critical to the success of your organization.
Suggested Reading: How to calculate the adoption rate and its impact on customer LTV?
Customer Renewal Rate, Renewal Analytics and Revenue Retention Rate
Two other metrics that support this are the Customer Renewal Rate and Revenue Retention Rate.
You have a customer renewal rate and think about this as your logo retention rate so this is going to be that percentage of company customers who renew during a specific period of time. It could be for the year, could be for a quarter, could be for a month. But this is the rate at which your customers themselves are staying with you.
Second one is revenue retention rate and this is the revenue that you’re continuing to renew over a specific period of time which is rate of renewal.
Gross Revenue Retention (GRR) and Net Revenue Retention(NRR)
The next thing that we are focusing on is gross revenue retention compared to net revenue retention. Think about your gross as the dollars that you have for renewal and those same dollars staying with you later versus the dollars you have for renewal and the ability to grow additional dollars. So you have to understand the importance of these two metrics independently.
Decline in GRR
Net Revenue Retention alone does not tell the entire story.
Let’s look at the graph. Looks awesome right! This story is amazing if you look at that NRR over time. So you’ve gone from 95 to 120 percent. That’s a positive story.
Now, what if you start to unpack that and actually look at gross as well. When we look at the gross revenue retention you’re actually declining, so this is telling you that either some of your customers are leaving or they’re down selling at a rate much greater than we’d like them to be.
Now imagine you just maintained your gross, so like let’s assume this is shooting about that 80 -90 targets and you just stayed the same, you didn’t improve your gross revenue retention rate.
Look at the NRR, it’s gone from 95 to 140 and that’s huge. You didn’t focus on growing more of your accounts, you actually just made sure that you maintained that gross so this is why it’s so important to pay attention to all these metrics because they fundamentally tell a very different story.
Now what happens if you actually improved the gross. So with the slight improvement of the gross over time look at how this changes that number so in this narrative you’ve improved the base and also expansion and so you’ve gone from 95 to 150.
You can have a significant material impact on your business if we can improve that gross retention.
Get the Renewal Analytics right
There are four things you need to consider as you’re building out your program:
The first thing you’ve got to figure out is who is the right team. I think this is like the great debate that will continue forever on who should manage the renewal & renewal analytics should it be customer success or account management or sales.
There is no right or wrong team makeup of who manages this, it depends if you’ve got a comprehensive let’s say a product that is very technical you might have a customer success team that has this skill set.
But maybe they’re not the best suited to have that commercial conversation in which case you have an account management team.
What are the steps that your team will take? You have to figure out who your customers are, what their process looks like, and what you need to do in order to execute that.
You might have your own internal deal desk review cycle that you know every contract needs to go through before you can present it to the customer in which case those stages need to be built into your process.
Map out the steps that your team will need to take to effectively execute the process.
How soon do you want your team to start the renewal process? The third thing is the timing. Some start the renewal 90 days out, and some start their renewal 120 days out. It just makes it unique to your business.
There’s something very specific about why some want to start theirs a bit earlier, this could be to make sure they’ve got enough time to have the appropriate conversations with their customers and they’ve got the time to resolve objections.
Others need the time to do those things effectively where their customers don’t feel rushed and that they’re being forced into the timeline.
Where is it managed
Fourth thing is, you’ve to figure out where to manage your tools and systems. This will enable you and your team to execute this flawlessly. But if you don’t have a place to manage it, it’s going to be challenging.
You won’t know if your team is doing the right things at the right time. You won’t have visibility into how things are advancing or if things are stalled.
Renewal & Renewal Analytics Playbook
The first thing your team has to do in the renewal playbook is do some good research. Now it’s not just researching the customer because we should already know who the customer is and the space they play in.
But this is important for you to understand what their previous contract looks like. Do they have strong adoption? Is there not a strong adoption? What does their license consumption look like?
You have to do your research to know everything there is to know about your customer from how they’re using their product to how they’re engaging with you and what’s happening with the people in the organization.
This is all about that customer experience and sharing information upfront with them so that they’re aware if there is an auto-renew in their contract.
Being transparent with your customer in your initial outreach also includes a notification saying you want to schedule a meeting with them.
And this would suggest that your customers need to notify you by date and if they don’t, you will auto-renew and here’s what the components of that auto-renewal will look like. Let them determine whether or not they want to just go through an auto-renew.
Time to meet
In step three you want to make sure that you are scheduling some time with them and having a conversation. This is a big deal depending on the contract size and the value but even if it’s small, you want to have an appropriate dialogue with your customer.
The objection doesn’t need to be a blocker per se. It’s just something that you have to make sure your customers don’t really have anything standing in their way from adopting your platform, embracing the partnership and feeling really good about the value they’re gonna get from it.
Now that you have aligned with your customers on what they need, it’s time for you to prepare a proposal for their reviews. This is where you need to get into the paperwork of all this.
So make sure that your customers have very clear visibility into what it is that they’re signing up for. It gives you an opportunity to present more and hopefully grow those accounts.
Make sure that all the information that your customers have shared with you to this point has been dotted by every eye. Make sure that you’re clear on what the next steps are with the main exec to help understand their timeline and process.
Close the Loop
At the end of renewal, one of a few things might happen. Maybe you’ve got a short-term extension, maybe your customers churned, maybe they’ve renewed, maybe they’ve expanded.
Either way, you’ve got to manage that off and close it out effectively. You’ll need to do the right thing and think about all of the systems that you need to update.
Bonus Tip: Renewal Playbook- What magic can it do?
A look at our Renewal Playbook:
Make use of machine learning for Renewal Analytics
One of the most significant advantages of the machine takeover is that you won’t have to waste time poring over spreadsheets or evaluating complex data. This information is provided for you through renewal management software, which saves you time.
Machine learning allows you to feed data from prior customers into a model to “train” it to understand the signals and chances of a customer becoming inactive or abandoning a ship. You can examine customer data and instantly calculate a renewal likelihood score for each client using machine learning, making it simple to identify at-risk consumers.
Your Renewals team can then take over and use that data to add just the proper amount of human touch to your customers’ encounters. Remember this: that, while machine learning is a useful tool, it should not be used in place of human interaction. This is the core of renewal analytics.
Renewals & Renewal Analytics should be centralised for accurate forecasting.
You need an up-to-date perspective of your business to effectively anticipate renewals, whether it’s from an executive-level or a microscopic look at the granular details of individual renewals. This bird’s eye perspective can then be leveraged to mitigate churn risk scenarios, allowing your renewal team to communicate with clients in real-time.
It’s also more efficient to have your renewal system centralized. Rather than waste time preparing reports, your team can just log on and see where a renewal is in the process.
Your managers and representatives can then use in-line editing to make real-time modifications to renewals. You can develop and manage data cleanliness requirements using a centralized renewal system, making renewal forecasting and even forecasting user growth easier.
Sounds cool? Learn how CustomerSuccessBox’s AI/ML technology can help you forecast user growth, help with renewal analytics and retention!
Forecasting User Growth
These steps will help you to effectively and accurately manage an opportunity so that you can forecast revenue:
So the first thing is to make sure that you have the appropriate stages configured. This will outline where you are in opportunity management. This phase is further divided into several parts:
Notify your customers on auto-renewal and also schedule a meeting and collect their feedback.
Stage where the customer is considering their options to renew the subscription.
Closed won; signature received
Your customer has communicated their intention to churn
You lost a close; the customer has churned.
This phase is all about how you are forecasting this opportunity internally. This is again divided into many sub-stages:
The customer has committed to churning; no path forward. We forecast this at 0% probability. With a 0% probability, this will help you forecast those numbers out. And you can be more accurate on how your revenue will look like.
Renewal is at risk. The forecasting probability is 10% here.
The customer is in the early stages of the decision process, and deals in this Forecast Category need further development. 30%
Work to advance these opportunities. Nevertheless, the renewals are fully qualified, and the opportunity has a Close Plan. 75%
Confident of a successful outcome, and only in exceptional circumstances. You can confidently rely on these opportunities in your sales forecast. The forecasting here is 90%, because everything is set and it is just a matter of days before they start using your product.
Closed opportunities are won. No further sales effort is required. It’s a 100% forecasting probability here. You are 100% considering these accounts when you forecast your revenue.
MEDDPICC (Metrics, Economic Buyer, Decision Criteria, Decision Process, Identify Pain, and Champion)
Process in which key components of renewal are managed. The sub-stages of this phase includes:
Metrics are the quantifiable measures of value that your solution provides
Person or people with the purchasing authority
The various different criteria that will be evaluated to determine if your product meets their needs
The steps that will be taken to move this through the review process
Process that the paper goes through from decision to execution
Identify The Pain
Understand the pain your solution solves for your customer
The internal contact selling the value of your solution
Understanding if there is competitive risk in the conversation
It All Comes Down to Data When It Comes to Forecasting Renewals
Companies with high retention rates recognize that it all boils down to data and how it’s handled. These businesses have advanced early warning systems, real-time business understanding, and the ability to conduct these services on a large scale. Your renewal analytics is a vitally important thing to scale your customer success.
It’s no longer enough to have an all-star team. Without the right technology, even the strongest renewal teams might suffer from high churn rates. It’s simply too big a job for humans to handle at scale, and it diverts attention away from what your renewal team should be doing instead: achieving desired customer outcomes.
The answer is a full-fledged renewal management system. When it comes to identifying at-risk renewals, machine learning can save your renewal team a lot of time and effort. That’s how it works in the Saas age.
So wrapping it up, these are the key takeaways. Determine who in your organization is best equipped to manage the renewal. Establish your renewal management timeline, figure out when you want to start it and why you want to start at that timeline. And make sure that your timeline matches very specific reasons for your business.
Maintain a clear communication with your team and ensure proper visibility. Also, use customer success software to track those renewal opportunities. This will help you be aware of each step your customer takes.