What is renewal rate?
Renewal rate is the metric that measures the percentage of customers who renew their subscriptions at the end of their subscription period.
Renewal rate is generally measured for subscription-based models like SaaS companies.
How to calculate renewal rate?
To calculate the renewal rate, divide the ‘number of renewed contracts’ by the ‘total number of renewable contracts’ and multiply by 100.
Formula for calculating renewal rate
Real-life example of renewal rate
You run a micro SaaS business, selling plans on monthly basis and you had 200 subscribers at the beginning of the month. At the end of the month, 150 of those renewed their subscriptions.
Then, the renewal rate of your SaaS for that month will be: 150/200 x 100 = 75%
What’s considered a good renewal rate? (benchmark)
A renewal rate of 80% for SaaS businesses is considered pretty good. Though, 100% is the holy grail of renewal rates which means all of your subscribers are renewing their subscriptions but this can be quite hard to achieve.
The higher the renewal rate, the more likely the company is to achieve its long-term revenue goals.
In the first quarter of 2022, the renewal rate of ServiceNow was at 98%.
In 2019, Salesforce had a renewal rate of 91%.
Ways to increase your renewal rate
- Focus on product stickiness: Focus your efforts on making your platform easy to use, engaging and valuable for your customers so they upgrade their subscriptions. Read this guide on: Ways to Improve Product Stickiness
- Identify likely churns: Users who interact less with your service are more likely to cancel. You need to engage with such customers in various ways to lower the churn rate. Read: 12 Ways to Stop Churn Immediately
- Offers for long-term subscribers: You might offer some discounts to subscribers ready to pay for annual subscriptions. You may also provide offers for a defined period of time, starting before the end of the contract. Know about some: Innovative Customer Loyalty Programs
Also Read: Related Metrics
- Net Promoter Score
- Customer Churn Rate
- Customer Lifetime Value
- Customer Retention Rate
- Repeat Purchase Rate
- Customer Satisfaction Score (CSAT)
- Customer Acquisition Cost
- First Contact Resolution Rate (FCR)
- Free Trial Conversion Rate
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Average Revenue Per User
- Referral Program ROI
- Upsell Rate & Cross-sell Rate
- Viral Coefficient
- Participant Share Rate
- Invitation Conversion Rate
- Net Dollar Retention
- Product Adoption Rate
- Sessions per User