Grace period on renewal date or no?

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ERIKA COWEN
ERIKA COWEN Member Posts: 2 Navigator
edited March 2022 in Metrics & Analytics
Hello everyone, I am looking to understand industry best practices on churn calculations. Do you calculate churn immediately if the renewal date passes or do you allow a grace period (15, 30, 60 days, etc) if you expect the renewal is in fact on its way?

Thanks!
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  • Jeff Heckler
    Jeff Heckler Member, CS Leader Posts: 80 Expert
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    edited March 2022
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    I've implemented Dunning Periods and retention tools (ie.: Brightback) in the past.
    Regardless of how you eventually decide to calculate churn, look for all ways to mitigate it.
    The vast majority of these methods can be automated (with or without a formal CS Ops team).
    Additionally, you may want to incorporate your grace periods into an "at-risk" or health score and establish those metrics with visibility, ownership, CTAs, and actions.

  • Stewart Stokes
    Stewart Stokes Member Posts: 17 Thought Leader
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    edited March 2022
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    At a prior company where I had direct responsibility for churn we allowed a 30 day grace period before booking it as cancelled.  For example, if the renewal date was 1/1/2022 we wouldn't count it as churned until 2/1/2022.
  • Jeff Heckler
    Jeff Heckler Member, CS Leader Posts: 80 Expert
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    edited March 2022
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    Beware, there may be data privacy controls, too.
    In a previous life, we held data for 6 months after the contract termed.
    This helped hold customers, have them return, or provide them grace during tight financial times (like COVID brought on).
    We did the 30-day grace period, as well, for all churning accounts.
    Helpful for win-back efforts.

    Thanks,
    Jeff

  • Saad Khan
    Saad Khan Member Posts: 10 Contributor
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    edited March 2022
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    We implement a 30 day warning email ( before renewal date)to the Sales person, Renewal team, SE, TAM and CSM, then the customer has a 30 day grace period after the renewal date. Normally 60 days is enough to get the PO in.
  • Emeric Vallespi
    Emeric Vallespi Member Posts: 1 Navigator
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    I would recommend looking at the reality of your current renewals when the expiration date is overdue. Are the renewals that take place after the expiration date are mostly effective after 15, 30, 60 days?

    This can help to adjust your tracking to really consider deals as lost when they're beyond your current average. Moreover, it can be a new indicator to monitor and improve: time to renewals for customers in the grace period.

    The most important thing in my opinion is to find a method and stick to it over time otherwise your data will be incomparable and useless. Grace period is a high at-risk period, I'd add that regardless of the metrics calculation, CSMs' reaction should not slide over time, or the customers will become almost-prospects again.

  • Mauro Ronci
    Mauro Ronci Member Posts: 1 Navigator
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    Hello Eirka! 👋🏼

    I’m for the “no grace period” party. In fact I calculate churn rate based on date of renewal.

    Why? I don’t like the idea to defocus my CS team from the date of renewal and I don’t see any benefit related to it.

    Grace period lovers, what am I missing? Try to my mind! 😊 More than opened to read different ideas!

  • [Deleted User]
    [Deleted User] Posts: 0 Expert
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    This is something you should coordinate with your Finance team on. There are two situations:

    1) auto-renewal

    2) non auto-renewal

    If the contract renews automatically and you have not received notice of cancellation by the prescribed date in the contract (e.g. typically 30 or 60 days ahead of renewal date), then the contract is booked as renewed. If the customer comes back to you to cancel after the renewal, you’ll typically want to ‘hold the line’ on the contract and determine what you can do to help them achieve an outcome with the remaining contract period.

    In the case of no auto renew, technically it’ll count as churn the day after the contract end date (i.e. the first day the ARR is no longer there). Instead of a grace period, I’d focus on notifications and ensuring the customer knows the renewal is coming and you learn what they intend to do. The real problem here is that the Finance team must invoice for the new contract period which triggers revenue recognition. So if it auto-renews and then you let the customer cancel after their renewal period, the Finance team must make an adjustment.

    I am not a fan of grace periods because it sets a precedent that it’s okay for renewals to slip and creates consistent, persistent messes between the customer org and finance to manage. Better to set the standard that renewal date is the renewal date, and manage the exceptions that arise.

    @ERIKA COWEN