Cash flow is an issue for many managed service providers (MSPs) as the economy struggles to recover from the effects of COVID-19. The need to maintain cash is more important than ever—and right now, renewals are low-hanging fruit for your business. Keeping up with renewals also promotes engagement with your clients, which can also create more business.
Keeping Up With Retention and Renewals
All too often, MSPs continue to try to reinvent or create new ways to generate more business. Sometimes, you shouldn’t focus all your efforts on trying to see what else is trending; instead, look at the opportunities right in front of you. In fact, existing customers are more likely to try new products and spend more, compared to new customers. By staying on top of renewals, you’ll help preserve customer retention, which is essential to keeping up with monthly recurring revenue and your overall cash flow.
What’s the Difference Between Customer Retention and Your Customer Renewal Rates?
Your MSP’s retention rate measures the number of clients that signed up for your service offering and maintained your services throughout the life of their contract—even if they could cancel at any time.
Further reading MSP Customer Retention: 5 Best Practices to Reduce the Churn
Your renewal rate measures the number of clients that decide to renew your services at the end of their current subscription period.
Understanding and Calculating Your Renewal Rate
Renewal rates should be measured across different time periods; for example, days, weeks, months, or even years. Each measurement holds individual value to your business. This is because the length of time helps you identify where potential problems are in your process, whether it’s onboarding when measuring a shorter rate versus a pricing problem over a longer period of time.
Customer Renewal Rate
Divide the number of customers who renew at the end of the specific time period by the total number of clients who were up for renewal, then multiply by 100 to convert that number to a percentage. However, this rate can never go above 100%, which means every customer renewed their subscription. This isn’t always the case with other renewal rates.
Revenue Renewal Rate
Every client is different. Not every customer is worth the same amount, which is why the revenue renewal rate is so important. To calculate this, divide the sum of renewed revenue during the specified time period by the total amount of revenue up for renewal, then convert it to a percentage.
MRR Renewal Rate
This is like your revenue renewal rate, but condensed to a one-month period. This helps you track consistently, especially when customers might be on contracts of differing lengths. Calculate this by dividing the renewed MRR by the total renewable potential each month and multiplying by 100 to get a percentage.
Further reading Introduction to Financial KPIs for MSPs
Managing Ongoing Renewals
For companies in the realm of managed services, you’re typically operating through an annual contract system, which means you may not see accurate information regarding your retention until the first batch of renewals. Even so, the first set of numbers you get isn’t likely to reflect consistently in future statistics.
The ability to maintain renewals helps you ensure you're keeping money coming in, which is especially important in a period where there is a possibility that new client prospects and pipelines are shrinking due to the coronavirus.
