It seems like there’s a lot of convoluted explanations for the renewal rate concept online. Professionals in the service industry have this habit of assigning really complicated math calculations to metrics like this, which causes them to seem impenetrable to outsiders, especially people who don’t like unnecessarily complex math.
I feel you, and I cringed when I realized it was time to talk about determining your renewal rate, and taking actions to react to what you learn. I didn’t want to try to explain that math. But, the more I look at this, the more I realize that most of the complicated steps in this come to the same result you get by taking a much easier path.
First, let’s explain right quick what the term actually means. We’re all familiar with churn (the cancellation of service by a customer), there is also the loyalty factor, or the anti-churn. This is renewal.
Now, just like calculating curves and ratios to get churn by dividing the cancellations by the retained customers in a period, you can use this same process to get your base rate of renewal.
Now, it gets a little more complicated if different churn units and renewal units have variable monthly recurring revenue values due to multiple plans or service offerings. But, all in all, it’s wise to compartmentalize those, before you calculate on them anyhow.
Now, once you know what your rate is, how do you know if it’s good or bad, and what do you do about it? Well, if you have a percentage lower than sixty, you are in a crisis. A percentage higher than about eighty five is not really tenable.
We’ve mentioned that a churn wall is inevitable as a service provider grows, meaning that at some point, the volume of customers ensures a churn percentage that becomes impassible. But, that’s another story.
What you can do about it depends on some backtracking through your service and customer history, and determining what the deciding cause of cancellation might be. Only once you know what the problem truly is, can you begin to work out a solution for it, of course.
Now, I can’t tell you specifics that well, because I can’t predict the cause of this problem. But, what I do know is a leading problem is the natural tendency of people to wander off and try other services. Finding ways to maintain interest is important, which means that you have to keep your brand very alive, offer deals and packages to customers often, so that they stay interested, and feel appreciated.
Along with this, another lead cause is having problems with customer service and support. This can cause people to grow unhappy, and unwilling to give you patronage. So, taking a long hard look at your customer service department could help greatly.
Now, this isn’t to say that the customer service department is blundering, it just means calibration is probably needed.
So, now that you see how quick and simple it is to calculate a renewal rate, you just need to follow that bit of advice, and track what the cause may be, if your rates just aren’t up to snuff.