Metrics for Renewals

Some support organizations handle renewals; others rely on other teams, often part of the Finance organization, and in some cases the Sales team is also responsible for renewals. (My strong preference is for the Support organization to handle renewals — but that’s another discussion for another day.)

Regardless of your setup, good metrics are very helpful to ensure that renewals are on track, so I thought that I would share a suggested inventory. Many thanks to the blog readers who suggested this topic. They wished to remain anonymous so I suspect not all is well in the land of support renewals!

Outcome Metrics

Renewed revenue against forecast ($ booked/$ expected).  This may well be the key renewal metric: how many dollars were renewed against the forecast.

• Note that for this and all other metrics discussed here, we are talking about bookings, not (recognized) revenue. If you renew a 12-month contract you can only recognize 1/12 of that amount each month. The metrics here do not rely on recognition: they just track revenue received, or at least booked.
• Don’t cheat on the forecast (denominator): it should consist of all the contracts due over the period you are considering. It’s not fair to exclude customers who are known to be dissatisfied, or have not been active in support, or have been acquired.

To get a little deeper into the numbers, I also like to consider:

Retention ratio (# contracts renewed/# contracts expected): how many contracts (not dollars) were retained.This is helpful to get a true feel for the churn, independent of dollar amount, for instance if pricing has changed, and possible upgrades (see below). Some organizations choose to instead track churn or attrition (# contracts not renewed/# contracts expected).

Upgrade percentage (unexpected $ / expected $). Where do these unexpected dollars come from? It could be that a customer chooses to renew at a higher rate, or that a customer thought to be lost in a prior period (hence not a part of the “expected” revenue, comes back after all. If you get a lot of these returning customers it would be useful to separate them from the true upgrades.

Reasons for cancellation. In many organizations most cancellations occur because of mergers and acquisitions, and indeed it can be very difficult to avoid a cancellation when a customer is acquired. But it’s important to track other reasons: product problems, cost, service issues all provide feedback for the future.

Process Metrics

If the support organization is directly responsible for renewals, additional metrics are needed to get more visibility into the sales process.

On-time contacts (% of contracts contacted by the target date). For organizations that are running standard renewals (not month-to-month subscriptions), the idea is to set a target date for initial contact, typically 120 to 90 days ahead of the expiration date. You can then measure adherence to that standard, much like a response time metric for tech support.

On-time renewals (% of contracts renewed by the target date). Much like the above, but focused on the closing of the renewal. Similar to a case-closing metric.

If you are running the renewals function you probably also want to track bookings to cash to ensure that bills are paid promptly.

Does your support organization own renewals? What renewals metrics are you tracking?