Renewal rates are the lifeline of any SaaS company. The growth of any SaaS business not only depends on new customers but also the renewal rate.
High renewal rates in SaaS provide a stable revenue source every month which helps you to focus on upsells, advocacy, and acquiring new customers.
It will be a waste of resources if new customers keep coming in but there is high churn. It is like filling a leaky bucket. No matter how hard you try, there won’t be any significant revenue growth.
In the SaaS world, the switching costs have decreased tremendously so if the customer is not satisfied, s/he can easily switch to your competitor.
How to calculate Renewal rate?
It’s simple to compute the client renewal rate. To convert a percentage, divide the number of customers who renew at the end of the chosen time period by the total number of customers who were up for renewal, then multiply by 100.
Renewal Rate= (Number of Customers who renew their subscriptions / Total number of customers up for renewal) X 100
So, what can you do to ensure a high renewal rate?
1. Allocate responsibility
Each client should be assigned to a specific Customer Success Manager (CSM). Several people like account executives, onboarding specialists, customer success managers may be working with a single client. But there should be one person to take the complete responsibility of that client. Or else whenever an issue arises, everyone will be blaming each other.
As they say, too many cooks spoil the broth. You have to make sure that the same thing does not happen with your team.
If each of the team members know the client they are responsible for, they would do their best to make sure the customer is successful.
2. Understand your customer
All customers are NOT the same.
Though they are buying the same product their requirements may be different. You will have to make different use cases depending on what different customers aim to achieve by using your product.
Here you will need to talk to the customers and understand their needs. This will help you know which all features they require. There is no use teaching a customer how to use a feature, no matter how good it is, if that feature will not help them achieve their goal.
If you teach the features that are going to actually make your customers’ lives easier, it will increase the chances of them renewing the subscription.
3. Product adoption is the key
The best way to ensure that you are going to have high renewal rates is to make sure that the product adoption is high among your customers.
If customers are frequently using your product, that means they are deriving some value out of it. Hence they are much more likely to renew the subscription.
Just think about it. You bought a product but then never used it because you didn’t feel the need to do so. Are you ever going to buy the product again?
Another way to make sure that product adoption is high, is to have sticky features built in your product.
What are sticky features?
These are features that once a customer starts using them, the customer will not be able to stop. It helps them achieve their goals and start using your product regularly.
Sticky features can also be the features that get integrated into the workflow in such a way that it is difficult to remove them in future.
4. Monitor health
Now you know that product adoption is the key to increasing the renewal rate in SaaS businesses. Hence, it is essential to monitor product adoption. But how will you monitor product adoption?
This is where a customer success platform comes in. It is difficult to monitor hundreds of accounts daily. And it can lead to not giving enough attention to the customers who actually need help (maybe have stopped using the product due to some reason). Ultimately it can even lead to customer churn.
Customer success platforms process several million data points to calculate customer health score. Once you know, which customers are not using the product regularly, you can engage with them to understand their concerns.
If you are able to fix their problems, you will reduce customer churn.
Product adoption health is like an early warning system. It warns you of an unsatisfied customer and maybe an impending churn, if not acted upon on time.
5. Focus on the customer experience
No matter how good your product is, if the customer experience is below par be prepared for customer churn.
Customers have not just bought your product because of how good it is. They also expect a good experience while using the product.
Ensure that you try to make the lives of your customers as smooth as possible, even if it means that you have to go an extra mile to do so. Always try to reduce the effort a customer has to put in order to achieve a certain task.
In case an issue crops up, be transparent and apologize instead of defending yourself and causing further damage. Empathize with the customer and try to solve their problems at the earliest.
Always try to over deliver on whatever you have promised, instead of the other way around. If the customer experience is good, whenever there is actually a problem with the product, the customer will understand and will wait till you find the solution. Try to adhere to the subscription renewal best practices.
Increasing the renewal rate by 5% can lead to exponential growth of the company. And it is much easier to retain existing customers than finding new customers.