"Amp it Up" - Big Announcement
And looking at the difference between customer Renewal vs Retention
Are you ready to take your career to the next level?
Then buckle up, because we’re about to “Amp it Up” at Mostly metrics!
To ensure everyone has access to great content, we’ll be launching a Tuesday + Thursday schedule. This benefits both free and paid, since each get more content than before.
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Now, with your renewed support in Mostly metrics, on to the meat and potatoes of today’s post…
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. It measures how well you’re maintaining customers who signed up during the same time frame.
In other words, Renewal Rate is based on contract end dates and Retention Rate is based on contract start dates.
The other big difference is Renewal Rate is measuring only what’s up for Renewal, while Retention rate is looking at your whole customer base as long as they were on board as of a specific date. That means there are usually more accounts being measured in Retention formulas than Renewal formulas, since not all customers Renew on the same date.
Both views are useful. Typically Renewal rate is used more internally to keep a grip on month to month operations, while retention rate is more commonly used for investors externally. But once again, people inside and outside the business do care about both.
Mostly Mistakes: Pulling forward renewals
This is a common way sales folks pad their pockets and trick execs into thinking their renewal rate is higher than it actually is. It’s called a pull forward.
You see, it’s totally possible for customers to Renew early. Let’s say the customer doesn’t expire until December. But the Sales Team may have a compelling event to Renew the contract in October, like on the backs of a new product sale. This is great in practice, because it de-risks the future. But there are three potential drawbacks:
Sales teams may pull forward renewals just to beat their quotas in the current period - it’s like borrowing from tomorrow to pay for today. This can be a slippery slope if you get aggressive and over-mine your renewal base
This problem is further exacerbated if sales teams are not only pulling forward renewals, but also overly discounting them to hit their number
Furthermore, pull forwards overinflate your true renewal rate for the period. They can throw off false signals, as you are increasing both the numerator and denominator with a win on something that wasn’t truly up for renewal yet. Depending on the magnitude of pull forwards, this can make compares tough from period to period.
Build a sales export from your CRM with every customer listed down the left side with a unique ID and spend by month listed across the top columns.
Find the month you’d like to start your renewal measurement at, and filter for all contracts that are that month, and not any sooner.
These are the only accounts eligible for inclusion in your renewal rate calculation
You can now calculate both the true account renewal rate and dollar renewal rate, excluding any pull forwards that went down in the period
And as a reminder, your dollar renewal rate has a very similar formula to your account renewal rate:
What I’ve Been Reading:
As a CFO, it’s your mission to understand the overarching structure and the underlying incentives of each department in the organization. This is especially true when a significant portion of your headcount is dedicated to a group, like Engineering. That’s why I tap into the insights of my new friend Luca Rossi, who writes Refactoring. He provides weekly, practical advice on how to write great software and work well with humans.
An increase in Go-to-Market roles usually signals a positive outlook for topline growth. More specifically, increasing sales capacity is viewed as a “bullish” signal. GTM is defined as any role in:
The following pre-IPO companies had the most open GTM roles in April. Interestingly enough, Klaviyo is on the list, who recently filed for an IPO.
Could others on this list be next?
We track the hiring patterns (by department) of 340 public and private tech companies. If there’s a trend you’d like to see, please let us know (1 minute form).
Quote I’ve Been Pondering:
“I would rather be heavyweight champion of the world - which I can never be - than King of England, President of the United States, or Kaiser of Germany”
-Jack London, Author
This type of content is great, I feel like I’m getting an MBA and the best part is that I can learn because I can apply it right away in the context of my job.
Thank you for this!