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 show you how to calculate each, while explaining multiple points of confusion. You’ll leave being able to accurately slice and dice your customer base across various cohorts.
The proverbial “Leaky Bucket”
Cohorts are just a fancy word for a “group” with similar characteristics (like their start date). Don’t be intimidated by this jargon.
TL;DR:
Account Renewal Rate vs Account 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 Renewal Rate vs Account Renewal Rate 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
The Net Retention Rope a Dope: Beware of including expansion dollars from customers who were not already onboard at the start of the measurement period.
Time Frames: Decide if your timeframe is bounded vs unbounded. Also figure out if you’ll separate out Monthly vs Annual contracts, or create a Blended view
Real Life Examples: An example using Dollar Renewal vs Gross Dollar Retention vs Net Dollar Retention breakdown to bring it all home.
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