July 14, 2020

How to Improve Customer Renewal Rate

Customer Renewal Rate-Featured

It costs five times more to acquire new customers than to retain existing ones. Keeping your customers satisfied and renewing is more cost-effective and efficient.

Renewal rate is a percentage that measures the number of customers that renew at the end of a period versus how many total customers could have renewed.

Having a high renewal rate enables you to more accurately predict revenue. When customers renew, you have guaranteed income for the duration of their contract. On the other hand, acquisition revenue can be volatile since your company’s sales numbers are less predictable.

Renewal rate can also help you identify trends in your service delivery and strengths and weaknesses in your product offering. The insights you gain from analyzing what leads customers to renewing, or not renewing, can ultimately help you improve your offering.

Those factors together can increase customer health and revenue health for your company.

How to Improve Renewal Rate

Instead of focusing on why customers choose to stay with your company, the best way to improve your renewal rate is to determine why they’re leaving and address the causes of customer churn.

1. Segment and analyze your database

Looking at all the churned customers in your database and identifying commonalities amongst the different accounts can help you hypothesize why customers churned and how you can prevent those issues from occurring in the future.

When did customers churn? Are there particular milestones or time frames in an engagement that people churn around? Do you have significantly higher churn at some parts of the year?

Trends related to time frame can indicate issues with your delivery process or a seasonality to the value you provide.

Do some of your products have higher churn rates than others? What product tier are customers most commonly churning from?

High churn amongst individual products might mean that they’re failing to fulfill the expectations set during the marketing and sales process or the value they provide doesn’t align with how much customers are paying.

Do some customer channel sources result in more churned customers than others? Are there events or channels that require large investments and aren’t resulting in long-term customers?

Analyzing churn trends by acquisition channel can help you learn ways your marketing and sales efforts might be mistargeted.

In addition to looking into why customers churned, you should also try to identify any leading indicators of churn like usage declines or payment stoppage so that you can develop a proactive preventative strategy. 

Finally, ask your customers why they churned and document their responses. This can help you validate your assumptions about what can be improved or identify problem areas you were unaware of.

Download our Customer Churn Cohort Analysis Template to determine how you  retain customers beyond their initial sign-up.

2. Create playbooks

Your segmentation will provide you with an understanding of what’s causing the most churn, so the next step for improving your renewal rate is to address those areas. Set up playbooks to provide extra customer support during scenarios that tend to lead to churn. 

With input from your customer support and success teams, create both reactive and proactive responses in order to increase renewals. 

An example of a proactive playbook could be incorporating a quarterly or executive business review for key customer segments with higher churn rates. These reviews should be strategic to deepen your understanding of your customers’ business goals and surface opportunities to provide a better level of support that aligns with those goals.

If you notice an account displaying leading indicators of churn, like a decrease in product usage, then a reactive playbook is more appropriate. These playbooks tend to be more tactical compared to proactive playbooks and focus on addressing specific needs. In the case of decreased usage, the playbook may be as simple as scheduling a call to intervene, open a dialog around potential issues and provide potential solutions.

3. Build processes to better support your customers overall

Playbooks are meant to address specific scenarios, but if you notice more overarching churn trends, you should address those too.

For example, if one of your products has an extra high churn rate, fix what’s wrong with that product. If it’s not providing customers with the value they desire or the value it does provide isn’t aligning with what they’re paying, find a way to increase its benefits. That could include creating better customer enablement materials to help them optimize their use of your product or redesigning aspects of your product so it works better.

Or, if you see a lot of poor feedback regarding your customer support system, change the way it operates. Enable your support reps to do more to help customers through better technical training, streamlined escalation processes and a measurement system that prioritizes completely solving issues for customers over closing a high number of tickets.

While those larger changes aren’t playbooks, they’re still fixing the root causes of churn within your organization.

4. Have an easy renewal system in place

In addition to working to combat churn stemming from customer dissatisfaction, you also need to address involuntary churn caused by out-of-date billing information.

Credit card failure is one of the largest sources of involuntary churn, and it can cost your company loyal customers. 

When a renewal is approaching, have a system for guiding that customer through the process. Establish a communication cadence for reminding customers of the pending renewal, layout any steps they might need to take and confirm payment details. 

If you’re looking to further analyze your company’s churn in order to determine how you can reduce it and improve your renewal rate, download this customer churn cohort analysis template.

Download the Customer Churn Analysis Template

Guido Bartolacci

Guido is Head of Product and Growth Strategy for New Breed. He specializes in running in-depth demand generation programs internally while assisting account managers in running them for our clients.


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