A SaaS company’s renewal rate is directly tied to the bottom line. For every client that doesn’t renew, recurring revenue goes down. To replace lost revenue, a SaaS company must invest additional resources to prospect, nurture, and convert new customers.
Channel can significantly impact an organization, yet most channel teams neglect SaaS renewal metrics. Discover why channel sales teams should focus on this KPI and explore strategies for boosting your company’s overall renewal rate using the channel.
Why Do SaaS Renewal Rates Matter?
As a channel leader, SaaS renewal rates are just as crucial for you as they are for your sales and marketing colleagues. Monitoring renewal rates allows you to increase loyalty and predict growth. Typically, the higher your renewal rates, the greater the ROI of your partner program, a metric your leadership team will consider when allocating budget.
SaaS renewal rates also reflect the soundness of your overall program strategy and can illuminate strengths and weaknesses. For example, high renewal rates typically point to:
- Increased customer satisfaction
- Greater user loyalty
- Increased LTV
- Optimal audience targeting
Meanwhile, low renewal rates may point to:
- Joint value proposition misalignment
- Lack of onboarding/support
- Poor user experience
- Incorrect pricing
Often, there are processes you can change internally to improve renewal rates where they falter. For example, after determining your value proposition is misaligned, you can adjust your partner program’s go-to-market messaging.
In addition to adjusting your internal processes, you may find specific gaps that partners can fill. If you find that users often churn due to missing features, you may consider finding an integration partner who can fill that need.
Similarly, if you find that users of a specific customer segment often don’t renew due to challenges using your tool, you may explore opportunities to work with channel partners who can support users after the sale.
How to Calculate SaaS Renewal Rates
B2B SaaS companies can measure renewal rates in various timeframes, including monthly, quarterly, and annually. To calculate your client renewal rate, first decide your timeframe. Then, determine how many users are eligible to renew at that time. Finally, divide the number of eligible users by the number of users that did renew.
For example, let’s say you are calculating your monthly client renewal rate. You had 100 users eligible to renew this month, but only 70 did. To find your monthly client renewal rate, you would divide 70 by 100 to get .7, or 70%.
You can calculate your revenue renewal rate similarly. Here, you’ll divide the total revenue eligible for renewal by the total revenue closed.
Building on our earlier example, perhaps you had $100,000 of revenue up for renewal. While only 70% of users renewed, those clients expanded their contract. So at the end of the month, you end up with $90,000 in renewal revenue, representing a 90% revenue renewal rate.
The difference between client renewal and revenue referral rates is that clients may adjust their total contract up or down on each renewal. As such, a stable client renewal rate won’t necessarily signal a plateaued revenue renewal rate.
What is Preventable Churn?
You can impact your renewal rates most by first targeting preventable churn (the portion of customers that don’t renew for an avoidable reason). Common reasons for preventable churn include:
Misalignment during the sales process. This happens when channel partners misrepresent your value proposition or don’t target your ideal customers.
- Avoid misalignment by providing thorough training to your channel partners and making sales and marketing resources available via your PRM.
- Communicate your ideal buyer personas early, and adjust often as you learn what’s working in the market.
- Assess content pieces using feedback from partners and engagement data, keeping an eye out for how different customer segments may misinterpret the information.
Poor user experience. A lack of onboarding, training, and support can contribute to poor user experiences.
- Develop processes for user onboarding, including training resources.
- Conduct regular channel partner, customer success, and user surveys to identify key areas of friction. Then, work with your product team to resolve issues and build stronger training resources.
A lack of communication. If you’re not actively working to engage users, it will be much harder to justify renewals when they arise.
- Don’t wait until your contract is up to begin discussing renewals. Instead, ensure users are happy early so they are primed to renew when the time comes.
- Depending on the length of your contract, reach out in advance to get feedback from your client and identify areas to improve.
- At this time, you can start preparing to upsell your client on additional services.
Newer companies and organizations with early-stage channel partner programs will likely struggle with increased preventable churn. However, as you learn more about your user segments, their interests, and your joint-value proposition with partners, you can refine your efforts to increase renewal rates accordingly.
How Can Channel Increase Stickiness?
Channel can have a significant impact on your organization. There are three key ways channel can optimize SaaS renewal rates.
- Leveraging channel partners is a great way to improve renewal rates. It’s been repeatedly found that the more channel partners engaged in a deal, the greater the lifetime value and the lower the churn risk. Clients who work with partners are more engaged, get more value, and enjoy integrated solutions to drive better business results.
- Collaborate with other functional departments to deliver a better experience to users and channel partners. If your sales team isn’t aware of your channel partner ecosystem and the value they provide, they won’t be able to share that with prospects. Collaborate with your sales team to ensure they fully understand the power of channel partners and how they can improve the user experience. Similarly, work with your marketing team to develop a concise and enticing joint-value proposition.
- Monitor renewal rates by client segments. As with any other metric you report on, segmenting your user data will allow you to identify critical insights. For example, you may find that clients of a certain size that work with a certain partner are more likely to churn than other client segments. With this information, you can fine-tune your efforts, focusing on the user segments with the most opportunity for improvement.
Monitoring SaaS Renewal Rates as a Channel Leader
SaaS renewal rates are a powerful metric that can signal opportunities or challenges. Monitoring your SaaS renewal rates effectively ensures you’re in tune with the market, your client needs, and what your channel partners sell. Remember to segment your renewal data to uncover deeper insights.
Discover additional resources on measuring performance and increasing channel success, such as:
- Partner Program KPIs to Measure Channel Performance — This blog explores the top 13 partner program KPIs to track and how they can guide you to successfully manage the complex partner relationships in a channel program.
- The Best Metrics to Measure Partner Performance and Engagement — Revenue and SaaS renewal rates aren’t the only metrics for measuring the channel. Dive deeper into tracking and assigning value to partner performance and engagement KPIs in this blog.
- 20 Necessary Tools to Enable Channel Partners to Sell — Today, technology and automation are table stakes for any successful channel partner program. This blog covers 20 critical tools to enable your channel partners to sell.
Channel Partner Scorecard Template — Use this template to monitor your alignment with partners post-onboarding to nurture productive communication, systemize measuring individual success, and forge successful relationships.