This post was last updated on March 7, 2023.
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How to Improve Subscription Renewal Rate
Calculating Renewal Rates
How to improve subscription renewal rates — it’s a question that isn’t very new to subscription-based businesses.
Undoubtedly, these businesses have to focus on customer acquisition and retention to achieve long-term growth, consistent revenue, and success.
Although it does seem very straightforward in theory, improving the subscription renewal rate is quite tricky in the real-business scenario.
Let’s take an example of your business.
You are dealing with a significantly lower subscription renewal rate for a particular product/service than your competition.
The reasons can be higher product/service prices, lack of features and utility, lower customer satisfaction, ineffective marketing communication, or maybe the issue is not from within your organization. Perhaps a new or better product/service is launched by a competitor.
Given that you run a business for revenue, your strategy cannot be based on trial and error. You need to put your brain into finding out the reason.
So, how can you improve your subscription renewal rates?
Here is how you can decrease churn without throwing a wrench on your revenue stream.
How to Improve Subscription Renewal Rate
Following is a step-wise process of increasing the subscription renewal rate.
1. Identify the Customers Who Are Likely to Churn
It’s 2022, and most businesses (including yours) likely have a plethora of data about their customers, including their behavior, engagement rate, satisfaction level, etc.
The first step to improve your customer subscription renewal rate is to analyze current customer behavior to identify the ones who are most likely to churn.
Following are the metrics and techniques you can analyze for the same:
There are various customer journeys where you can ask your customer about their experience with your products or services.
For example, you must have noticed an email or a mobile app pop up right after contacting the customer helpline of your service providers.
These satisfaction surveys can be held at multiple levels of a customer journey for gathering data. So, for your business case, think of a way you can ask your customers about their experience with your products/services.
The idea should be to reach out to this group of customers who are most likely to churn. By understanding their issues, you can find out where you need to improve and thus improve your subscription renewal rates.
Unlike customer satisfaction information, you don’t need your customers’ input to obtain engagement metrics.
You might already be using a CSM (if you’re not, now is when you opt for one.), and it can provide you with critical information related to your customers’ engagement.
For example, your CSM tells you about the customers who haven’t used your product/service for the past few weeks. Consider them a part of the customers who might churn.
See how easy things can get to improve subscription renewal rate if you utilize data-powered business intelligence?
2. Analyze External Business Environment
Sometimes, it’s not you, it’s your competitors. A new market entrant can disrupt the way a niche conducts business.
Even if your customers are happy with your products/services, there are possibilities that some of your competitors might drop their prices to obtain a large chunk of market share.
Hence, before you plan your offers and promotions for your customers, analyze your competitors’ pricing plans and offers and try to beat them by offering lower prices or a higher value proposition. This can help improve your subscription renewal rates.
3. Offer Incremental Promotions
It’s hard to resist offers. When you’ve identified the customers who are not likely to renew their subscription, you need to come up with a strategy to convince them to continue their subscriptions. This is the only way to improve your subscription renewal rates.
But how do you do that?
One great way is to offer discounts to entice them to renew their subscriptions.
It’s best to send the first renewal offer a couple of weeks before your customer’s subscription expiry date.
But here’s where you change things up.
You can start with a reasonable but low discount for the renewal.
If the customer doesn’t renew, send them another offer with an increased discount and post their subscription expiry date.
And how does this help?
If they’re sitting on the fence when it comes to the pricing, the higher discount rate might convince them to subscribe.
But here’s a word of caution.
No matter to what degree you believe your business exists to cater to your customers; there is a harsh reality that every discount you offer to your customers is a cut in your revenue.
When you aggressively offer discounts and price cuts to all of your current subscribers to complete their subscription, you head towards a rabbit hole where you, along with your competitors, participate in a race to the bottom.
So, make sure you use discounts wisely to improve revenues and subscription renewal rates.
4. Leverage a subscription management solution
Technology-powered subscription solutions like Younium lets you easily model and organize your B2B subscriptions. They eliminate your need to manage spreadsheets and custom databases manually.
Following are some of the advanced features subscription management solutions like Younium come along with:
- Automatic Booking with ACV, CMRR, and TCV measures
- Customer unique pricing
- Data capture and insights
- Full audit trail and versioning
- Multiple currencies and entities
Calculating Renewal Rates
Shouldn’t we have discussed this in the beginning? Well, many businesses use subscription management software like Younium, so they don’t have to calculate their customer renewal rate manually.
But, if you still want to learn how to calculate subscription renewal rates, here you go.
First, open your CRM and calculate the number of customers who renew their subscription at the end of their subscription period (CR).
Divide this sum by the total number of subscriptions due (RD). Lastly, multiply the outcome by 100 to convert the number into percentage.
The mathematical formula will look like this - (CR/RD) x 100
FAQs1. What is a good subscription renewal rate?
In a general sense, a renewal rate of above 80% is considered favorable. It means that the business’s customer retention efforts are effective. Needless to say, every organization aims to bring its subscription/customer renewal rates closer to 100%.2. What is the difference between subscription renewal rate and retention rate?
These are different terminologies used for quite the same meaning but in different scenarios.
The subscription renewal rate is basically the retention rate in a subscription-based business model, whereas retention rate is used in a general business environment.
The calculation method for both is the same.3. What is the renewal rate?
Renewal rate is the percentage of customers renewing their subscriptions with a SaaS company.4. How to calculate subscription renewal rates?
The formula to calculate subscription renewal rates over a specific subscription period is as follows:
(Number of customers who renewed their subscriptions ÷ Number of customers who should’ve renewed their subscription) x 1005. How do I have better control over the renewal rates by leveraging the subscription data
Follow these simple steps to improve the subscription renewal rate for your SaaS business:
- Identify the subscribers who are more likely to churn out
- Look for competitors’ pricing and new offerings
- Offer incremental promotions to those subscribers who are not going to renew
- Leverage a subscription management solution to manage your entire customer lifecycle better
- Eliminate renewal roadblocks
In a competitive business environment where mostly every business is using software solutions and tools to optimize their product strategy and customer life-cycle, it’s essential to invest in the right subscription management software that would allow your SaaS business to cope with the pace of the change.
Request a free demo of Younium here to learn how it can help you to take control of your subscription management.