Renewal Rate Definition

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BillyMorris asked 2 years ago

Hi all,
What renewal rate definitions are out there? How do different companies approach this? How are early and late renewals treated? What edge cases are observed that can skew this calculation and what solutions have been found?

2 Answers
ThomasPeff answered 2 years ago

Adaptive Insights (~$100M rev SaaS company — budgeting & reporting) we measure retention on both a logo and $ARR (Annual Recurring Revenue) basis, both as % of what’s up for renewal in the period, as well as % of total base — we sell some multi-year contracts so not every renewal is up every year. For $ARR we measure both gross retention (which does NOT include upsells) as well as net retention (which does include upsells). There are often corner cases on what is/isn’t upsell (price increases, more/less seats, what about swapping out one product for another). My advice is figure out what’s easily measurable.
Early renewals are not recognized until the period that they are scheduled in, late renewals are counted as churn in the period for which they were originally scheduled and then if they come in later are counted as a positive windfall in the later period in which they were ultimately closed.
For example, assume you had 2 contracts for $100 each, one scheduled for Jan and the other Feb. The Jan didn’t close until Feb, and the Feb closed on time in Feb. We would report 0 / 100 = 0% retention in Jan, and then 200 / 100 = 200% retention in Feb. And if you looked at Q1 as a whole, it’d be 200 / 200 = 100%.

Scot Fredo answered 2 years ago

This is a great resource for the many ways public companies define renewal/retention rates.

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