The 12 Essential Renewals KPIs
Numbers reveal little in a vacuum. Their real importance lies in how they relate to the wider ecosystem and the trends they inform. For example, say your company grew its renewal rate by 6% last year. Taken at face value that could be considered a win, but what are the qualitative factors that led to that number so it could be repeated, or ideally, expanded upon for the next year? Where’s the context that spotlights new opportunity and key customer relationships? There are an infinite number of ways to slice and dice performance to yield new growth, provided you have the right framework.
ServiceSource has developed a comprehensive approach to setting key performance indicators (KPIs) to improve a renewals program. Based on over 20 years of experience pioneering customer success and renewals, we recommend 12 essential KPIs to monitor and understand how to create deeper, longer lasting customer relationships. Here are what they are and why they’re important:
- Total Opportunity Amount – this measures the total potential contract value that can be renewed in a period. While this might sound like renewals 101, it provides a baseline level of measure to work back from. If your renewals booking is 30% of the total opportunity, that reveals an area of improvement.
- Adds Ratio – this is the proportion of renewals from unexpected sources, or opportunities that lie outside of the pre-determined target range. Given its nature, it is among the most difficult to predict without comprehensive data. That said, a recent analysis of the ServiceSource portfolio showed Adds Ratios for our clients as low as 2% and as high as 48%. By including it in a KPIs matrix, it becomes more predictable over time and can eventually be included in overall opportunity measure.
- In-Quarter Renewal Rate – is the percent of opportunity expiring in the current quarter that is actually closed before the quarter ends. Think of it this way: if a company has $100 worth of contracts expiring in the quarter and books $90 by quarter’s end, its renewal rate appears to be 90%. However, when $5 of those bookings represent contracts expiring next quarter and $3 worth of contracts from the previous quarter, the true in-quarter renewal rate is 82%. It captures the most accurate measurement of Quarter-over-Quarter performance for better tracking and analysis.
- Final Renewal Rate – this percentage measures the opportunity expiring in the quarter compared with the total rate achieved. I.e. how much did you bring in by renewals this quarter. Eliminating the timeframe is important here because, as we all know, large transactions can run beyond typical expiration. This way you can account for both time-sensitive and overall deals.
- Contact Days in Advance – here is where we begin to look at more contextual data, measuring the average number of days in advance of contract expiration that your sales team is contacting end users. Why is this important? The sooner you’re on their radar, the sooner the customer is likely to review. In fact, based on our portfolio analysis, at 120 days before expiration, every additional week that passes before you contact customers reduces your renewal rate by 2.5%.
- Sales Cycle Length – a sales staple is how many days on average it takes for customers to renew their contract. For example, if you know a customer typically requires 75 days to successfully run a renewal through its internal channels, you can optimize the process you set with internal sales teams.
- Contracts Renewed Before Expiration – here we explore the full percentage of contracts renewed on or before expiration. Service organizations want this number as high as possible, that’s because if a contract lapses without renewal, it reinforces the idea that they can live without your business. Plus, even if the company does end up renewing, that’s still lost revenue for the time in-between.
- Resolution Rate – simple enough, the percentage of opportunity where the sales cycle closes, either through renewal or cancelling completely. This helps service organizations keep track of every client and provides insight for all available opportunities.
- Close Rate – this separates out the “wins” from the resolution rate. Comparing the two is a powerful indicator of renewals performance.
- Conversation Rate – reflects the difference between the booked value of closed contracts and their original estimated value. Conversion accounts for cross-selling and upselling, how much additional value you’re able to bring to clients.
- Conversion Reason Codes – In terms of context, these are your bread and butter. These are the qualitative factors that inform why clients chose to add new services, and what customers are looking for.
- Cancellation Reason Codes – The opposite of the above. Why are customers leaving? Where are there opportunities for improvement? Getting into the trends can help reduce this rate in the future.
These metrics provide indicators on buying habits, the competitive landscape and the customer experience. By tracking these 12 essential KPIs, you can think more strategically about your business. They are critical to building a renewal dashboard that provides an accurate, consistent assessment of historical performance. It enables thoughtful analysis of trends and allows you to compare performance across products, geographies and channel partners. But, ultimately, the value of a renewal dashboard lies in the ability to leverage this historical data to drive insight and to enhance future performance.