Renewals
If you sell on a subscription model that expires once every period, a key metric is the renewal rate. Renewals are typically thought of in terms of a “block of expires” where each block represents a set of subscriptions of equal value that is set to expire at the same time.
Think of a company like TiVo which sells not only hardware (Personal Video Recorder or PVR) but also a monthly service (program guide). The subscription service can be purchased on a monthly basis or for the lifetime of the PVR. Calculating the renewal rate is very straightforward as the above calculation indicates.
Best Practice
The renewal rate measures how effective you and your organization are at getting customers to sign up for your service when it expires. A low renewal rate is negatively related to both customer value and profitability.
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