How much time do you spend on renewals for each customer?
Here's something to think about.
With such a pivotal impact on the success of your business, the phrase "renewals are the lifeblood of SaaS companies" rings true.
Yet, it doesn't always get the attention it deserves.
- Leaving contracts to the last minute.
- Not identifying "at risk" accounts fast enough.
- Missing land and expand opportunities.
There's a good chance you need a streamlined SaaS renewal management process.
In this article, you'll learn how to benchmark your renewals, automate the data that's costing you money, and use basic psychology in your strategy to "always be retaining."
But first, you need to define who owns the renewal process in your business.
Who should own renewal management?
It's a tricky question.
Sales should focus on landing new deals, not farming from your existing customer base.
But should CS really be involved in pricing and negotiating conversations?
There is no "one size fits all."
Depending on your organization, it might work to have CS completely own the renewal process, whereas some companies like UserGems work best with a more hybrid approach.
"In my opinion, CS should serve as a strategic advisor and partner," says Justine Wares, Senior Customer Success Manager at UserGems. "When money gets involved, it sometimes makes customers feel like they can't trust their CSM."
Inviting the AE to the renewal conversation is an opportunity to bring the rep up to speed with business objectives and reasons for the renewal. It creates synergy between the teams and supports an expansion motion.
What we do at UserGems is bring the customer's Sales rep back into the conversation if we identify an opportunity for upselling or expanding their contract to include new products. The CSM will advise the customer to explore more opportunities we offer based on their goals, but we don't handle pricing. If it's a flat renewal, the CSM will handle it.
What is a good renewal rate in SaaS?
Before we dive into renewal rate goals, let's take a few steps back.
Your retention rate is used to project profits and growth. If your SaaS company is on the rise, your retention rate will exceed the acquisition rate. It's a good sign, you're gaining users, revenue, and everyone is sticking around.
…But if your retention rate is lower than your customer acquisition rate, it's time to sound the alarm. Your sales metrics are waving the red flags that you have a net loss of customers.
That brings us to the different types of retention rates.
- Net dollar retention rate (NDR): This sales metric calculates a company's year-over-year performance. It takes into account your expansions, downgrades, and churn and shows how well you engage and upgrade your customers.
- Customer retention rate (CRR): What percentage of your paying users renew their plans? Your customer retention rate will give you a percentage that can't exceed 100%. Focusing on customer retention helps prioritize your customer's needs, which directly impact your bottom line.
- User retention rate: Use this metric to measure the percentage retention of your entire user base - free or paying customers. Improving this kind of retention helps you figure out how to keep all your users happy, but it won't increase your profits.
With the definitions out of the way, let's dive into what is a good renewal rate for each type.
Net dollar retention
A healthy NDR is anything over 80%.
SaaS companies that achieve an NDR of more than 100% grow rapidly. It shows stakeholders and venture capitalists you have more cash efficiency, your customers are purchasing upgrades, and your income outweighs downgrades and churn.
What does it mean if your NDR is lower than 100%?
It's a sign your customer base is contracting.
It's why you need to track your NDR and your monthly recurring revenue (MRR). If you're only tracking MRR, you can still see a positive uptick in customer acquisition revenue, but you'll miss your revenue contraction from existing customers.
Customer retention rate
CRR measures the percentage of loyal customers returning to purchase from you. It's a good indicator of your business health and overall customer satisfaction.
According to the Mixpanel Product Benchmarks Report, SaaS companies' average monthly churn rate is 3-8%.
Therefore, a healthy customer retention rate to aim for is between 92-97%.
If your churn rate starts to grow, that's a sign for your customer success team to jump in and figure out what's causing friction and how to remove it.
Maybe your onboarding process needs a tweak or two, your ICP isn't defined, and marketing is bringing in PQLs with low customer fit scores.
User retention rate
The same Mixpanel Product Benchmarks Report reveals that SaaS companies' average user retention score is above 35%.
If your SaaS company is tracking lower than the industry average, you need to figure out what's causing your churn and fix your leaks ASAP.
Tips for improving your renewal management process
Step 1: Define what an “at risk” account is for your business
No one likes them.
Even if you end things on good terms, starting a new chapter without your partner is difficult and always involves emotional damage.
And in the business landscape? You have to deal with the financial burden when a user tells you it's over.
The good news is that breakups don't come out of the blue. There are always telltale signs that someone is unhappy, and if you take action early enough, you can save the relationship.
That's the foundation of your renewal management strategy.
Sit down with your sales and CS team to identify a list of pre-churn behaviors. Ask yourself, what are the signs a user might be planning to churn and end your relationship?
Some of the common leading indicators include:
- An increase in the number of support tickets opened
- A drop in product usage or lack of product adoption
- A negative customer satisfaction survey response
- Missed onboarding steps or lifecycle milestones
- Lack of perceived product value
Once you have your list of risk behaviors, use your data to flag accounts, and take action to mitigate churn and increase customer retention.
"Thanks, but exactly how do I implement a system to track pre-churn behaviors?"
I'm glad you asked.
Step 2: Implement a system to track potential churn accounts
Traditional CRMs are built for sales teams. These products are incredible for helping you track leads, nurture prospects, and close the deal.
But after the sale?
Not so much.
There's a disconnect between sales and CS. You cannot effectively and efficiently track leading health or risk indicators once a user subscribes.
What does that lead to?
It opens your relationship up to churn.
So what's the solution?
You have two options:
- Manually monitor accounts for pre-churn behavior
- Automate the process with a CRM integration
Let's unpack each one.
Manually monitor accounts for pre-churn behavior
To create a manual pre-churn system, your CS team should answer the following four questions:
- Product adoption health: Did the user complete your onboarding process? Are they using all the key features to reach their goal?
- Customer service health: Are support tickets answered promptly, and is the problem solved?
- Financial health: Has the account upgraded or downgraded its plan or number of seats?
- Customer relationship health: How many touchpoints does the account have with CS? Are they on track to reach their goals?
The only downside with this method?
Manual = time-consuming.
Your CS team will quickly run out of bandwidth to monitor each account, especially when you enter a rapid growth phase.
Automate the process with a CRM integration
Is manual account monitoring not an option for your PLG company?
Then, you need a tool to track churn signals and automatically alert your CS team that a potential breakup is looming.
Think of it as a live customer health score.
Breyta's integration syncs with your CRM and proactively lets your team know as soon as there is a change in:
- Engagement frequency (including executive engagement).
- Product usage or license utilization.
- Support tickets (number of opened tickets and priority).
- Customer sentiment (NPS score and CSAT).
Step 3: Drive the right actions to increase renewals
Okay, so now what?
Your CS team has a list of upcoming renewals.
On the one hand, you have a list of "green" accounts. These are your happiest customers, and the renewal is guaranteed.
Then you have your "red" accounts. These are customers displaying signs of cold feet. How do you mend the relationship, reignite the spark, and sweep your user off their feet?
The good news is that it's a lot easier than you think.
It starts with answering the question: How should your team handle renewals?
The answer will lead you to create a renewal playbook to mitigate risks before a user clicks "cancel subscription."
What you're doing is creating a trigger. When a customer's renewal check-in is around the corner, your CSM team should receive a notification outlining the next steps.
For example, a "green" account could follow the following process:
- Review the original contract, customer goals, and current product usage metrics.
- Aligning with the Account Manager on the renewal strategy.
- Contacting the decision maker to discuss the renewal contract.
- Sending out a proposal
For "red" accounts, you'll need a different playbook:
- Review the original contract, customer outcomes, and current product usage metrics.
- Review customer support tickets.
- Align with the Account Manager to develop a game plan to turn the account around and deliver on value before the renewal date.
The bottom line?
Don't review your renewal opportunities one month before contracts expire. Your CS team needs to schedule regular account check-ins if you're not using a tool that'll automatically notify you if an account is slipping into the red zone.
Without enough leeway, you'll run out of time to implement your action plan and demonstrate value before the contract runs out.
Step 4: Identify customer outcomes to demonstrate value
When you're asking someone for a renewal, you're asking for a conversion.
What's at the heart of the question? Persuasion. Influence.
If you want to keep converting, you need to understand the psychology behind why someone bought your product.
It reveals your customer's thoughts, feelings, and desires.
When your sales and CS teams can use empathy to understand the customer's journey, desired outcomes, industry, and challenges, you can curate a product and user experience that aligns with their goals and makes renewing a no-brainer.
So, how do you achieve this?
During the onboarding process, CS works with the customer to lock down specific goals and outline a road map to success.
- Ask the user to state their expectations.
- Identify the customer's financial goals.
- Agree on clear and achievable objectives.
- Create an action plan and timeline for value realization.
- Document goals and use the document as a baseline for your KPIs.
You're showing your customers you truly care about their needs and have an action plan. The latter is a key component of the art of persuasion. You're not selling an idea. You're bringing change in behavior and moving users towards their desired outcome.
Your team will have a defined customer journey, and your customer will have a tangible progress tracker that drives home your value and increases trust and brand credibility.
Step 5: Identify renew and expand opportunities
Before your CSM contacts the decision maker, there is one more piece of housekeeping to complete in your renewal management strategy.
Identify land and expand opportunities.
According to KBCM Technology Group's 2020 SaaS Survey, it costs $1.60 to acquire a new customer but only $0.69 to expand an existing account.
To see the growth that will push you over 100% net dollar retention, your sales and CS team need to work together to identify potential Enterprise account opportunities.
If you have the Breyta integration, this final step becomes seamless. With built-in lead and account scoring, you can see at a glance which accounts are prime for an upsell.
But what if you're still flying solo?
Here are some vital questions to identify up and cross-sell opportunities:
- Is the account not using a feature that aligns with its desired outcome?
- How close is the account to maxing out its bandwidth or seats?
- How many seats are available in the company vs. how many you've captured?
- Is the account on a monthly plan? How can you encourage an upgrade to an annual subscription?
- How can you use your customer champion to renew your subscription and expand further into the company?
Wrapping it up
For a successful SaaS renewal management strategy, sales and CS must work in alignment. Both teams need to be on the same page to drive the actions that lead to customers sticking around and renewing their contracts without hesitation.
The big takeaway?
Invest in unpacking your customer data to discover actionable insights.
- Identify the traits of your most successful customers: Is it 80% product adoption within 30 days?
- Figure out how to replicate that behavior: Tweak your onboarding process to incentivize product adoption within a specific timeframe.
- Create a proactive environment: Give your sales and CS teams the tools to identify churn before it happens, the ability to remove friction, and deliver on value before your contract period is up for renewal.