Have you ever received a last-minute renewal notification email from a subscription software provider — after months of radio silence — leaving you to scramble to renew before the deadline? If so, you know from personal experience just how frustrating that can be. You might’ve even been tempted to cancel your subscription, or worse, you did cancel it.
Renewal is something many software as a service (SaaS) companies struggle with. Many believe that once they’ve made the sale, they’re free to rest on their laurels until it’s time for customers to renew but, in a market that rewards those who consistently engage customers, this hands-off approach is more likely to lead to customer churn than continued success. The reality is that the SaaS renewal process doesn’t start during the actual renewal period — it starts with the very first customer interaction. In fact, every interaction and every experience plays an important role in a customer’s decision whether or not to review. And, considering that a 5% increase in customer retention can produce more than a 25% increase in profit, your company can ill afford to lose repeat business.
Fortunately for you, we’ve put together a few pointers on how to improve your SaaS renewal rates — but before we get started, let’s go over the basics.
Renewal vs. Retention: What’s It All About?
“Renewal” and “retention” are two words often used interchangeably, despite having different meanings. When we say that a customer has renewed their subscription, we mean that they actively chose to continue their subscription. When we say that a business has retained a customer, we mean that the business kept the customer either because that customer actively chose to renew or because they passively allowed their subscription to continue.
Based on these differing definitions, it’s clear to see that renewal is actually part of the larger SaaS customer retention process — and a vital part, at that. After all, it should be every SaaS company’s goal to acquire customers who are so passionate about its product or service that they actively want to keep using it.
What Are SaaS Renewal Rates & How Do You Calculate Them?
This one’s a little challenging, since there is no singular definition for what a SaaS renewal rate is. For some companies, their SaaS renewal rate refers to the percentage of customers who choose to renew their subscription at the end of each subscription period; for others, it refers to the percentage of recurring revenue generated by subscription renewals. For others still, it refers to the monthly recurring revenue (MRR) retained from existing customers. Simply put, SaaS renewal rates can refer to any metric you use to gauge the success of your business’ retention efforts.
Since the meaning of “SaaS renewal rate” varies from one company to the next, there are a few different ways to calculate it.
If you were to take the customer renewal rate approach, you’d divide the number of customers who renewed their subscription by the total number of customers up for renewal and multiply it by 100. So, for example, if you had 80 accounts up for renewal, but only 60 actually renewed their subscription, you’d have a 75% customer renewal rate.
If you were to take the revenue renewal rate approach, you’d divide the revenue from customers who renew by the total amount of revenue up for renewal and multiply it by 100. If you had the potential to earn $200,000 in revenue from renewals but only generated $180,000 in revenue from renewals, you would have a 90% revenue renewal rate.
The last calculation we’ll cover — MRR renewal rate — is a little trickier. First, you take the MRR per customer and multiply it by the number of customers who renewed. Then, you’ll want to multiply the MRR per customer by the number of customers due for renewal. Once you have the sums for each, you’ll take the sum of the first equation and divide it by the sum of the second equation. Finally, you multiple this number by 100 to get the final MRR renewal rate percentage. So, let’s say you have 500 customers, each of whom have an MRR of $1,000; 300 of those customers are up for renewal, but only 250 actually renew. Based on the formula below, your company would have an 83% MRR renewal rate.
Calculating Your LTV:CAC Ratio
Just when you thought we were done with the mathematical portion of this blog post, we have a few more equations to throw your way.
You might already be familiar with the terms customer-acquisition-cost (CAC) and customer lifetime value (CLTV or LTV). As their names imply, these terms refer to the cost of acquiring a new customer and the total value of each customer, respectively. Both are valuable metrics for subscription-based companies and can be used to evaluate both a business’ growth and the efficacy of its SaaS renewal efforts. In order to have a sustainable and profitable business model, the cost of acquiring a new customer should never exceed the customer lifetime value; the benchmark LTV:CAC ratio is 3:1.
To determine your business’ LTV:CAC ratio, start by calculating your CAC. First, tally up how much money you’ve spent acquiring customers within a given period of time; this should include money spent on paid advertising, marketing campaigns, the salaries of employees in acquisition-focused roles, and so on. Once you’ve come up with a firm number, divide it by the number of customers you were able to acquire in the period over which that money was spent. For example, if you spent $5,000 on customer acquisition over the course of a year and successfully acquired 50 new customers as a result, your CAC was $100.
Next, you’ll want to calculate your LTV. In order to do so, you must first figure out what your average revenue per user (ARPU) is; you can calculate this by dividing your total revenue over a period of time by the number of customers you had in that time period. For example, if you generated $100,000 in revenue over the course of a year and had 1,000 customers in that time, your ARPU would be $100.
To calculate your LTV, simply multiply your ARPU by the average customer lifetime (typically expressed in months). So, if your ARPU were $100 and your average customer lifetime was 18 months long, your LTV would be $1,800.
Now that you have all the values you need, you can calculate your LTV:CAC ratio by dividing your LTV by your CAC. So, if your LTV were $1,800 and your CAC were $100, your LTV:CAC ratio would be 18:1 — a solid showing.
Automating the Customer Lifecycle
Now that we’ve gotten those pesky equations out of the way, it’s time to talk SaaS renewal best practices, starting with the mother of them all: automation. Automation has the power to reduce — or eliminate entirely — the friction associated with SaaS renewal.
Salesforce offers two forms of automation: declarative automation and programmatic automation. Declarative automation consists of workflows, flows, and process automation, whereas programmatic automation involves writing Apex code and triggers. A good Salesforce consultant will know which type of automation is appropriate for each application and can use either to build a foundation for your entire SaaS renewal process or drill down and apply them to individual processes.
*Note: If your company does offer a free software trial, consider scheduling an automated check-in notification to prospects.
A message as simple as, “Hey, we noticed your downloaded our trial! Would you like help getting started?” can help you educate prospective customers and build trust early on.
Let’s take a look at how you can implement automation for SaaS renewal throughout the customer lifecycle, starting with new user onboarding.
Onboarding should be set up in such a way that it makes it easy for new users to understand how to use your product. Most SaaS companies offer prospective customers a free trial of their software during the initial sales cycle, but these trial periods are often too short for the customer to get a real feel for the system.Therefore, it’s up to your onboarding team to ensure that customers get up to speed. Consider building an automated new user email campaign, starting with a welcome email with basic account information during registration, followed by emails with instructions on how to get started or tips and tricks on how to get the greatest value out of your solution. By building out an extensive knowledge base for your customers and then granting them access to it, you make it easy for them to learn the ropes at their own pace. You can also automate much of the account registration process by pulling customer data collected during the initial sales cycle from your customer relationship management (CRM) system, saving new users the manual effort of filling out paperwork.
From there, you’ll want to automate customer service and support. Salesforce Service Cloud makes it easy to rapidly respond to customer service and support requests with Einstein Artificial Intelligence. You can use Einstein Bots to respond to basic service requests and configure custom rules that dictate when an Einstein Bot should escalate a request to a live service or support agent with Einstein Next Best Action. Introducing automation to customer service and support not only ensures that your customers’ needs are met in a timely manner — it enables your representatives to focus on addressing higher-level challenges, presents account executives with opportunities to reach out to customers directly, and frees up valuable resources.
Monitoring account usage is another easy way to use automation to drive SaaS renewal. By integrating your product or service offering with the Salesforce platform, you can receive automated usage data and metrics and make strategic decisions based on account health intelligence. For example, you might log into Salesforce and see that a relatively new customer hasn’t logged into their account in over a month. In the interest of keeping that customer engaged and retaining their business, you might reach out directly to them to get a better understanding as to why they haven’t logged in, and whether you can do anything to help. It might be that they’re dissatisfied with the service (in which case, it would be useful to solicit their feedback) or it could be something as simple as they aren’t sure how to use it. If it’s the latter (in which case, you might offer them a discount on enhanced training and enablement).
As you can see, weaving automation throughout the customer lifecycle is an ideal way to consistently engage your customers, understand what they want and need, build stronger relationships, and actively incentivize customers to renew. By the time that renewal actually rolls around, you shouldn’t be left wondering whether customers will renew — you should be confident that they will renew. In fact, you can even use automation to simplify the renewal process by automatically sending out paperwork a month or two in advance of the actual deadline and enabling customers to sign via eSignature. At the end of the day, it’s all about removing the boundaries to continuing the relationship and making it easy for customers to say “Yes.”
Write an Email They Can’t Resist
Your customers likely receive hundreds of emails a day — if not more — the vast majority of which are trying to sell them something. It’s easy to understand, then, how a SaaS renewal notification can get lost in the mix, or why a customer might not be champing at the bit to open it.
The goal of every SaaS renewal email (or, ideally, email campaign) should be to get your customers excited about renewing their subscription. If that seems like a tall order, it is: It’s really hard to write a good SaaS renewal notification email.
Hard, but not impossible.
*Pro Tip: Once you’ve written up your email campaign, automate it so that message are automatically sent to customers every few weeks.
You could take the fire-and-brimstone route that many SaaS companies are fond of, in which they warn customers of looming account expiration in an attempt to generate a sense of urgency, but many customers find that off-putting rather than incentivizing. Here are some better tactics you can implement:
- Remind them early and often. If you send out renewal notices a week before the deadline — heck, even two weeks before the deadline — you’re too late. You should always strive to be top of mind; that means starting as early as possible and sending not one email, but multiple. Remember what we said about email campaigns? Sending multiple notifications is the best way to give your customers every chance to renew.
- Go beyond email. Just because email is the most common form of communication between SaaS companies and their customers doesn’t mean it’s the only one. In fact, some customers prefer to be contacted via text or SMS message, phone call, or even over social media. Refer to customer profiles in your CRM system to get a sense of each customer’s preference and build out campaigns accordingly.
- Be generous with incentives. In all likelihood, at least a few of your customers will be on the fence about renewing, so why not sweeten the pot? Offering customers incentives such as a reduced rate or access to premiere support solutions could be the push they need to renew. Limited time offer incentives are also a great way to get customers to renew early — for example, if the renewal deadline is in January, you might offer customers who renew in November one month free.
- Don’t be afraid to extend the deadline. Your customers are only human, with busy lives and everything that entails. Maybe a customer meant to renew, but had a family emergency come up suddenly, or maybe they were sidetracked by a major project at work; it would be a mistake to sacrifice valuable business simply because they got caught up with other things. Although you shouldn’t hand out extensions indiscriminately, it sometimes pays to offer customers another week to renew before their account and all of its data is deleted. Not only will it earn you brownie points with that customer, but you might also be able to avoid the dreaded customer churn.
Still need help crafting the perfect SaaS renewal email notification? Here’s a basic template to help get you started — feel free to add your own personal touch:
I just wanted to reach out to let you know that your renewal period is just around the corner — I wouldn’t want you to miss out on all the amazing features [Product] has to offer.
While you’re at it, why not give [Premium Version of Product] a try? It’s got all of the same capabilities you know and love, as well as [Other Features]. We’re even offering a special discount: Renew today and you can get the first month of [Premium Version of Product] for free. Just follow the link below to renew:
[Call to Action Button]
If you have any questions, feel free to reach out to me directly; I’m really looking forward to chatting with you.
SaaS Renewal Best Practices Checklist
So, we’ve covered the two most important SaaS renewal best practices in the game — what other ones should you be aware of? Let’s take a look:
- Know your customer. Instruct your sales team to vet prospective customers as thoroughly as possible before they even attempt to close a deal — after all, if your product or service doesn’t align with a prospective customer’s needs and what they hope to achieve, they’ll be unlikely to renew.
- Set realistic expectations. Be honest and up front with your customers about what your product or service can do to avoid disappointment further down the road.
- Prioritize customer success. You need to be as invested in your customer’s success as they are. This means assembling a customer success team dedicated to ensuring that your customers are leveraging your product or service to its fullest advantage, as well providing clarity to customers who may be struggling.
- Take every opportunity to upsell. Upselling not only enables you to get the most mileage (read: profit) out of each customer, it also further entrenches customers within your suite of products, making them less likely to leave for a competitor.
- Follow up consistently. Whether it’s a service upgrade or service request, following up a few days after every interaction is an easy way to ensure that customers are happy — and, if they’re not, it’s a great way to resolve potential challenges. You might even consider conducting Net Promoter Score surveys to gauge customer satisfaction after an interaction, or even exit interviews with customers who cancel their subscription.
- Create a customer loyalty rewards program. Rewards programs — they aren’t just a thing in retail anymore. Offering loyal customers special discounts or members-only content not only demonstrates your appreciation for their business, it also makes them more likely to renew.
Boost SaaS Renewal Rates With Salesforce & VennScience
Salesforce makes it easy to automate the entire SaaS renewal process using a combination of programmatic and declarative automation, and VennScience can help you achieve the perfect balance. Whether it’s creating custom workflows or writing apex code, the dedicated consultants at VennScience can help you create a bespoke Salesforce solution designed to increase your SaaS renewal rates.