How are you currently tracking progress for your renewals team? There are limitless metrics that can be tracked, but every company must identify which metrics will be most useful for its business goals. That said, there are a few key performance metrics (KPIs) that reflect what matters most for recurring revenue and SaaS businesses: loyal customers, effective renewals teams, ROI on renewals and marketing spend, and quality products.
The metrics listed below provide indicators of the health of your renewals business and can help guide the tools and resources necessary to ensure strong under-contract rates and renewal rates. They will also help you prioritize and allocate activities to your team. It's important to review performance at the team and individual levels.
Which of these metrics will be most useful to your team?
1. On-Time Renewal Rates
Are renewals coming in on-time or after the expiry date? The more renewals that get processed on-time, the better it is for the health of your renewals business and workload for your team. It's common to have carryover or expired renewals come in during the month following the due date, but if the percent of carryover is growing, you may need to focus on closing out old renewals before moving on to on-time or early ones.
2. Close Rate
A good close rate represents an efficient renewal cycle and shows that your teams are successfully promoting the value of the renewal. This metric is measured as closed renewal opportunities divided by total opportunity size. Low close rates can reflect bottlenecks (for example if a vendor takes days to approve a quote) or a lack of follow-through with the customer.
Churn measures the percentage of customers who choose not to renew. Inevitably not every opportunity will renew, and it's important to monitor these rates. If you have a high churn (double digits), there's likely something wrong with your product, not your renewals team or marketing. Getting your churn rate under control is the first critical step toward building a sustainable renewals business.
Lost renewals can be captured and auto-added to a win-back campaign. This allows your team to be notified to re-quote the opportunity when it falls due the following year.
4. Average Revenue Per Customer
As long as your churn rate is acceptable, the keys to increasing revenue are up-sells and cross-sells. This metric is straight-forward: it's the average revenue you've already received from your customers. The goal is to build systems that steadily increase the revenue you receiving from customers, and this metric will tell you whether or not you're succeeding.
5. Customer Lifetime Value
By combining the average revenue per customer and the churn rate, you can predict how much future revenue you will receive in total from each customer (not to be confused with average revenue per customer, which is revenue that has already been received).
There are many different calculations that can be used to reach this metric, but the simplest formula is to multiply the average revenue you receive from each sale by the average number of sales per customer.
6. Lead Response Time
The faster a renewal sales specialist can respond to a customer, the more likely they are to close the deal. Keeping an eye on the average response time per lead is a key metric in assessing your team's efficiency. If this response time is too low, or is declining, it is an indicator to look to addressing potential bottlenecks or automating time-consuming processes to speed up the response time.
How Can You Get Metrics Like These?
These KPIs are based on data from several sources. Ideally, your renewals team will have access to a tool that will integrate your renewals business data with your ERP and CRM to create reports on these and other metrics. With such a tool in place you can then create proactive, automated reports to be delivered into your email inbox every week, month, or quarter to help keep your team on track with minimal effort.
Instead of getting overwhelmed with dozens of KPIs, though, select a short list to track regularly that will make the most impact on your renewal business.
Learn more quick and simple strategies for optimizing your renewals business by downloading our free eBook, "Renewal Program Metrics".