CS Metrics: Renewal vs Retention

SaaS companies use Churn as a top metric to spot and diagnose issues with customer retention. However, I've seen several conflate Renewal and Retention and use these terms interchangeably.

What is Renewal and how is it different from Retention?

Renewal: The amount of dollars or number of customers that you have during a given time. In other words, this is tracking what happens by a certain end date.

Example - For Q3 FY22 Company X has 392 customers representing an ARR (Annual Recurring Revenue ) of $Y dollars.

Retention: Unlike Renewal (which looks at cohort by end dates), Retention is tracking customers in cohorts by the start date, throughout the life of their contracts.

Example - For the 183 customers that signed up in Q1 FY21, their average LTV (Lifetime Value ) is $X dollars and the average number of products purchased is Y.

Why does this matter?

The biggest reason to track Retention (not only Renewal) is to unlock the power of Cohort Analysis. This allows you to look at groups of customers that share common characteristics (when they started, their product mix, their industry, etc.)

By measuring Retention within the context of acquisition or behavioral cohorts, you allow your team and organization to build better retention strategies and processes because you'll not only see when customers leave, but you can understand why so that you can take the necessary steps to fix it.

Brian Balfour did a great presentation on Growth and Retention .

How can you use Retention and Cohort Analysis?

Think like a scientist - test and analyze your hypotheses to innovate and iterate most effectively.

• Acquisition Cohorts - when customers sign up. Depending on your goal, you may choose to track this daily, weekly, or monthly. For example, a gaming application may choose to track daily whereas an enterprise accounting application may track monthly.
• Behavioral Cohorts are a great way to engage your Product and/or User Research teams. In looking at groups of customers based on the actions they take, you can surface leading indicators for why they grow or churn. Let's say you notice accounts that have at least one power user grow an average of 30% annually. The power users create more than 10 projects in their first 30 days. Spotting this, you'll want to set up processes to nurture and spot these advocates.

Final Thoughts

Boosting customer retention by 5% increases profits by 25% - 95% . Additionally, NRR (Net Retention Revenue) is a progressively important metric when it comes to valuation for SaaS businesses. Companies who combine the growing capabilities in analytics with the progress in behavioral science, will be at a clear advantage.

To go deeper on this topic, you can check out How to Run a Cohort Analysis in Google Analytics by Neil Patel (Top 10 Marketer according to Forbes)