In our previous post, we have discussed the four major revenue components in SaaS businesses, including Renewal revenue. While forecasting sales in SaaS businesses in synonymous to forecasting “bookings”. Forecasting Renewals in SaaS can be a daunting chore as it depends on pulling out data from various departments, especially customer success department.
Software-as-a-service companies thrive on renewals.
Revenue through renewals usually depends on the following metrics:
Churn rate = Total number of cancellations/ Total number of customers you have
out of your 10 clients, 2 churns out then your renewal rate is 80% and churn rate is 20%
For example:10 clients pay $1,200 a month
MRR becomes $1000
8 are coming for renewal but there is an upsell from one of them from $100 MRR to $400
So, your total MRR will change to $1100.
Hence, a steady MRR rate equates to a steady predictable renewal revenue.
To improve your MRR, you need to upgrade your existing customers and invest in customer retention.
A sound MRR indicates that you are showing the value of your services to the customers and that they are not churning out.
Using CLV along with other SaaS metrics, such as MRR, ARR, and churn rate will help you perform better to steer your SaaS business in the right direction. You can use these data points to know about your customers’ intent and improve the service them or invest in building new features.
So, focus on reducing your customer acquisition cost, increase renewals, increase upsells and retain customers by providing what they want!
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