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Renewals Forecasting: The Key to Improved Customer Retention

By April 17, 2024May 22nd, 2024No Comments

Customer success and renewals managers are always looking for ways to improve customer retention and reduce churn. One of the most powerful yet underutilized strategies is the disciplined practice of renewals forecasting.

Just like sales teams use a weekly forecasting process to instill discipline and gain visibility into their pipeline, renewals forecasting can provide immense benefits for customer health and business performance. By methodically reviewing and forecasting renewal opportunities one to two quarters in advance, companies can gain critical line of sight into their gross logo retention (GLR) and gross revenue retention (GRR) rates.

This forward-looking view is invaluable, especially in the current volatile market environment. Relying solely on historical data to predict the future is risky – we all know the past doesn’t dictate the future, particularly for SaaS businesses facing constant change. But by building up a renewal forecast from the account and opportunity levels, companies can stay ahead of the curve and get a much more accurate picture of their future ARR, revenue, and cash flow.

The Benefits of Disciplined Renewals Forecasting

There are several key advantages to adopting a rigorous renewals forecasting process:

  • Align Finance and Ops: With an accurate, forward-looking view of renewals, finance teams can better forecast revenue, cash flow, and other critical business metrics. No more relying solely on rear-view mirror data.
  • Proactive Risk Mitigation: Spotting potential renewal risks a few quarters in advance gives you time to intervene and address any issues before they result in lost revenue. This empowers customer success and renewals teams to be more proactive with account management.
  • Better Resource Allocation: Accurate renewals forecasting helps the business allocate resources effectively. Understanding which customers are at risk of churn allows CSMs to focus their efforts where they can have the most impact.
  • Identify Expansion Opportunities: Parsing out straight renewals from renewals with price increases or cross sells highlights whitespace – those customers who you should be expanding with but haven’t yet. CSMs can then partner closely with sales to pursue these high-potential opportunities in increase account penetration.

How to Get Started with Forecasting Renewals

The key is to make renewals forecasting a disciplined, weekly process. Set clear goals for each CSM around metrics like net revenue retention (NRR) and equip them with the full set of data they need – like ARR, net retention, product usage, NPS, support tickets, executive sponsorship, payment history.  Incorporate CSM’s subjective view (or intuition) of the health of a customer into the renewal amounts and projections.

Tools like Discern make it easy to methodically review and predict renewal opportunities, both for the current quarter and the next. With real-time integrations to customer data sources, CSMs can understand customer health, forecast renewals, and gain that all-important forward-looking view of customer retention.

By taking a more proactive, disciplined, and data-driven approach to the renewals process, we can all drive meaningful improvements in retention, expansion, and ultimately, our companies’ overall growth. Don’t leave these critical metrics to chance – make renewals forecasting a strategic priority.