Renewals should be a no-brainer in any sales-driven organization. The opportunities are there since the customer is already familiar with your products and/or services and should be onboarded. But how do you quantify the opportunity? To leverage this data requires the collection and analysis of at least two metrics:
- Total Opportunity Amount
What is the true value of your renewal opportunity? “Total Opportunity Amount” is the total potential contract value that can be renewed in a time period. While this sounds elementary, the only way to accurately assess performance is to capture the true baseline value of your opportunity. The biggest obstacle to a reliable total opportunity value is pre-set exclusions. Companies often systematically exclude a set of contracts from their opportunity base.
These auto-exclusions are highly subjective and potentially arbitrary. By excluding any part of the total opportunity, renewal results can be inflated and unreliable in trending analysis. As a result, teams will not be working to the full amount in your contract base.
- Adds Ratio
Have you captured your starting point accurately? The “Adds Ratio” metric is the proportion of renewals from unexpected sources. These “bluebird” transactions are impossible to predict. A customer may mistakenly think he is under contract but then need to purchase one; another may initially refuse to extend the contract and decide to purchase it later.
An analysis of the ServiceSource portfolio showed the “Adds Ratios” metric for our clients as low as 2% and as high as 48%. This large swing is dependent on the quality of the renewal data and how accurately total opportunity is measured. If tracked rigorously, “Adds Ratio” becomes more predictable over time and can be included in the original opportunity base. It is also a critical component of your sales team’s forecast.
Simply using last year’s renewal revenue as the baseline is the traditional approach to calculating total opportunity. But this may underestimate your opportunity and therefore overestimate true renewal performance. Have you factored in pricing increases to the opportunity base? New purchases? Add-on services? An accurate starting point ensures that renewal rates will be truly reflective of your teams’ performance and therefore provide a better benchmark over time.
These two metrics are important because they will help you establish a foundation to build and/or strengthen your renewals program. They’ll set the stage for deeper insights from more complex metrics that might be applicable in the future. They are just two of the metrics that every well run renewals program tracks. To get all 12 of the key performance indicators for your renewal program download the eBook.