Measuring renewal rates gives you more than just a number—it shows the health of your company. Most sales organizations focus solely on the final renewal rate. This does not supply the high-level view needed to show when renewals are happening or how you can improve on-time renewals. Breaking out your renewals into unique measurements, like in-quarter and trailing renewal rates, reveals valuable information your company can use to improve your sales approach.
In-quarter renewal rates show you exactly where to focus, helping your team to prioritize the most pressing customers first. In this article, we’ll provide our best practices for gaining renewal insights through in-quarter renewal rates and put them into action in order to drive results.
1. Compare On-Time and Trailing Renewal Rates
Understanding past customer behavior is essential to discover which parts of your renewals management strategy is functioning well, and which ones you need to adjust. You’ll need to look at which customers renewed on time, and which were late. Once you have these data points, you can adjust current policies and execute new policies to better serve your renewal rate.
For example, say your company has poor on-time renewals but decent trailing renewals. In this scenario, your customers are frequently renewing late.
To fix this, consider your days-in-advance (DIA) notice. You’re probably not giving enough DIA notice that their renewal is due. Best practice is 90 days, if you ensure quotes do not expire before the renewal date.
Additionally, question your policies around late renewals, such as:
- Entitlement policy: Is your renewal policy the same for all customers? Is it strictly enforced? Ideally, you’ll maintain one standard policy prescribed for every client.
- Grace periods: For best-in-class, you want to have zero grace period for renewals. If you give customers a grace period, less than 30 days is best.
- Late fees: Do you charge fees or penalties to reinstate late renewals? It’s best to backdate to the previous end date and charge a reinstatement fee. For example, if a customer is late by more than 60 days, you charge an added 10% late fee.
Modernizing and enforcing your standard practices surrounding late renewals will help increase your on-time renewals and improve the cash flow stream of your renewals program.
2. Deconstruct Renewal Rates into Three Subcomponents
A typical renewal rate divides the number of customers who renew by the number of customers who are up for renewal. But there’s a lot more data to be mined, and insights to uncover when you subdivide your renewal rate into three parts.
Deconstructing renewal rates helps determine whether you’re selling the value of your product/service and can uncover issues with your long-tail customers (lower than average transactional accounts). While you may be strong in $50k+ renewals transactions, that revenue could be masking losses in your sub-$50k space. This is a valuable insight because chances are, you have a lot more lower-dollar clients than your high-dollar enterprise accounts. This helps you to reposition your team or your digital strategy to grow those lower-dollar accounts into your next enterprise clients for life.
When examining renewal rates, dive into these three subcomponents:
Resolution Rates
The resolution rate sounds like renewal rate, but the two are different. This metric measures how many answers (“yes” and “no”) that a team gets from its total pipeline. It proves how well a sales team is covering a “batch” of business. If you’re experiencing a low-resolution conversion rate, your team may be focusing too much on the top-dollar deals, and not enough on the rest of the stack.
A resolution rate can also tell if you’re keeping dead opportunities in your sales pipeline too long, thus clogging it up with useless data.
Action items to pursue:
- Dedicate team members to focus on long-tail accounts.
- Determine modified contact/selling approaches for this segment of customers, who may buy differently than enterprise accounts.
- Coach how to elicit quicker responses from end-user partners.
Close Rate
Your close rate is basically how many customers — out of those who responded — told you “Yes.” It measures how well your sales teams are selling the value of renewing with your company. This metric also enables you to understand why a customer did not renew, whether it’s related to the product value or caused by a customer going out of business.
Action items to pursue:
- Ensure your training focuses reps on understanding the buying process & potential obstacles with each client.
- Add more customer touchpoints (health checks) to ensure a customer is consistently achieving the value they intended with your product/service, instead of reaching out only at the 90-day renewal mark.
Conversion Rate
The conversion rate compares the closed opportunity amount with current and previous closed transaction amount. This tells you how well your team can increase the value of a contract using sales tactics like multi-years, upselling, cross-selling, add-ons, and upgrades. A conversion rate can be negative, which is a very valuable insight for future actions to take.
Action items to pursue:
- Train employees on how to improve upsell and cross-sell tactics.
- Leverage previously mentioned strategies like health checks to capture the voice of the customer for revised sales approaches.
- Consider weekly best-practice sharing between reps & teams who are generating best-in-class results.
3. Use the Data to tell the KPI Story at Account and Sales Rep Level
Using these 3 KPIs, a manager can use more actionable insights to pinpoint coaching opportunities for a rep’s specific needs. Let’s compare two reps that hit the same renewal rate but got there very differently.
- Sales Rep A has high resolution and closure rates, but their conversion rate is low. So, you would train this rep how to better upsell and cross-sell to increase the value of their accounts.
- Sales Rep B has the opposite situation — a high conversion rate but low resolution and closure rates. With this sales rep, you would train them to focus more on their long-tail efforts to increase the number of smaller accounts they bring in.
The same KPI story breakdown can also be seen at the account summary level:
Action items to pursue:
- Find these data points for each of your reps to pinpoint areas of weakness and implement proper training.
- Consider posting daily wins & weekly results so others can learn & improve.
