Commonly Confused Metrics: Renewal Rate vs Retention Rate
Our July series on commonly confused metrics
The terms “Renewal” and “Retention” are throw around like “Affect” and “Effect”. Most people just 50/50 YOLO it when broadly referring to “keeping customers around.”
Today we’ll tackle four common points of confusion.
TL;DR:
Renewal Rate vs Retention Rate: Renewal is based on Contract End Date, Retention is based on Contract Start Date
Renewal Rate Land Mines: Beware of Pull Forwards to hit goals, over discounting, and comparability issues from period to period
Dollar vs Account Measurement: Dollar rate is almost always higher than Account rate, as stickier, larger accounts subsidize smaller, fleeting accounts
Gross vs Net Retention: Gross max is 100%. Net max is infinity. The difference is if you include expansion dollars or not
Renewal Rate vs Retention Rate
Renewal rate tells you how many customers re-signed at the end of their contract.
In practice that means listing out all the customers that renewed during a period, ignoring contract start date.
Renewal rate is a measure of how many of your customers at a specific end date said “Yes”.
Retention Rate is a little different.