Definition

The renewal rate is also known as the customer renewal rate. It highlights the rate at which a business can further extend customer relationships. This is largely applicable to subscription or membership business structures. Expressed as a percentage, the renewal rate indicates a company’s growth prospects and its ability to derive long-term value for its clients.

Example

It is calculated as the number of customers up for renewal in a given period divided by the number of customers who renew their contract. Suppose, in January 2022 Vareto had 7 clients up for renewal, 6 of them renewed their contracts. Thus, Renewal Rate = 6 / 7 = 86%.

Why it matters

The renewal rate helps companies to understand whether their existing customers are satisfied with the product or service and are willing to continue paying for it.

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