Saas · Sales

SMB SaaS Annual Contract Renewal Rates?

Karl Laughton VP of Finance at Insightly

October 23rd, 2015

Does anyone have a good benchmark for annual contract renewal rates for SaaS companies in the SMB market? Furthermore, has anybody seen a good customer success / sales renewal nurturing program/model? I'm looking for best practices around building a renewals motion, really appreciate the feedback!

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Henry Chou Product & Marketing Leader

October 23rd, 2015

Hi Karl-

You will likely want to look at 1st year retention separately from tenured retention.  First year will always be lower.

You will also want to look at customer retention as well as wallet retention.

In terms of benchmarks, I would say that you want to be at the 80%+ mark for 1st year and 90%+ for tenured in order to have a successful SaaS model.

Best practices is likely a longer discussion:  Some things to think about are a proactive customer contact strategy, doing some predictive modeling of churn and identifying those customers at highest risk, making sure that your onboarding program is solid.

Hope this helps.  Happy to chat more.

Karl Laughton VP of Finance at Insightly

October 23rd, 2015

Hi Jeff,

Thanks for your feedback. I'm trying to increase the % of customers renewing annual contracts. We started offering annual contracts in April of last year and are just now seeing the renewal rates of customers from those cohorts. From what I understand, most people are using some sort of email marketing nurturing program a few months prior to a renewal decision. I was just wondering if there were any best practices/ resources out there to benchmark our results against. 

Best,

Karl

Jeff ☁ CMO | Demand Generation | Content Marketer | Revenue Marketer | Product Marketer | Chief Marketing Technology Officer

October 23rd, 2015

Quick question - when you say renewal - does this mean renewing a paid subscription or are you attempting to drive free (freemium or trial) to paid conversions? Also, Lincoln Murphy at Sixteen Ventures is a great resource on this topic.

Rodrigo Vaca Product & Marketing

October 23rd, 2015

Karl -

Some time ago, forentrepreneurs.com published a very comprehensive benchmark study about SaaS companies. It was a very well done study of multiple companies and multiple metrics.

They covered the issue about churn. Here's a link to the particular graphic:
http://www.forentrepreneurs.com/2014-saas-survey-2/#Annual_Gross_Dollar_Churn_Excluding_Companies_lt25MM_in_Revenue

You can find other relevant information there, as well as on the first study they published.

As with anything, you should take the numbers with a grain of salt. For example - what is an SMB? That is a very wide space, and you're certain to see more churn (customer churn if not dollar churn) at the lower end of it than at the higher end.

Rodrigo

Matthew Angier Director of Business Development at Infrared5

October 23rd, 2015

Karl - I would suggest following this blog, http://tomtunguz.com/, covers SaaS from benchmarks to trends, in a really useful way.  Obviously Tom is a smart guy, and his posts are succinct, and he links to more actionable, detailed information in almost all posts.  http://tomtunguz.com/categories/customer-success/, http://tomtunguz.com/churn-fallacies/.  I dont know enough to be too prescriptive but if you cant definitively answer the question, why are my customers leaving?  I would suggest starting there.  Best of luck, always happy to chat further, its a really interesting problem to solve! 

Rob Kornblum

October 23rd, 2015

It depends on a couple of factors.

First, how small are your SMBs? In many cases, the churn from SMBs is because they go out of business, nothing you can control.

Second, do you have any other products or higher pricing tiers? If so, the "negative churn" of upsells will offset some of the true churn of customers leaving?

The real "magic" in this analysis is how much it costs you to get a new customer. You need to determine not just churn but lifetime value or LTV.

Lastly, most companies measure dollar churn vs logo churn. In other words, how many of last year's ARR dollars renewed, not how many of last year's customers renewed.

David Salinger

October 23rd, 2015

Karl - Agree with Henry on measuring that first renewal separately from the full renewable pool of subscribers. And his benchmarking at 90%+ for that second group is pretty consistent with the top performing SaaS companies.

On the other topic, my experience has been that renewal rates are always higher when a dedicated onboarding and success program is in place that is NOT owned by your sales team. Sales reps and account managers should play a role in the ongoing growth and development of an account, but user adoption (especially in that critical first 90 days as a new customer) is never something that a sales rep or quota-carrying account manager will prioritize. If you can get a set of self-service onboarding tools in place and employ a team of customer success reps who proactively reach out to users consistently for product coaching and feedback, the renewal rates will confirm the value of that team every time.

Jeff ☁ CMO | Demand Generation | Content Marketer | Revenue Marketer | Product Marketer | Chief Marketing Technology Officer

October 23rd, 2015

I think your question is difficult to answer because of wildly differing variations by industry. Utilization typically equates to value and renewals. I've also found that customers that don't engage customer service tend to be more prone to churn. Setting up customer retention goals in Google Analytics is a great place to start.You should be able to identify potential at-risk clients and create a nurturing program to address the issues. Any marketing automation platform can help you automate the process of engaging with at-risk customers.There is a new one on the market that I like a lot that and is affordable. It is called Autopilot - www.autopilothq.com. I hope this helps - Best, Jeff