Quick Summary: Accurate customer success renewals forecasting requires a disciplined, data-driven approach. Start with a focus on collecting only the most relevant retention and revenue metrics, choosing a forecasting model that matches your team’s maturity, and uncovering the patterns behind your data.
Customer teams have more data at their fingertips than ever before. Onboarding and retention strategies are standard practice. And the shift to better integrate CS and sales is well underway.
So the real, current challenge is: sorting. What do our CS leaders and teams do with mountains of historical, behavioral, and customer journey data? How can we shift our mindset from reactive to future focused, from assessing past mishaps to forecasting ideal scenarios?
Renewals forecasting was historically a sales game, but increasingly, CS teams are responsible for expansion revenue. And since customer lifetime value and NRR are integral to broader revenue goals, it is time for CS to embrace the predictive, in which strong forecasting begets lower churn. (For a practical breakdown of key strategies, check out how to structure your customer renewal forecast.)
Where can you start? We’ve outlined a process for data-driven customer success renewals forecasting, plus some extra tips on how ChurnZero can help.
Step 1: Collect the data and tools that matter (but don’t overdo it)
It’s tempting to gather up everything you can find from native and third-party sources, but blindly harvesting data will only burden your analysis later. Collecting the right historical data is key.
Choose the right metrics to inform your forecasting model.
Focus on collecting and tracking the metrics that are most meaningful to your team’s retention strategy. Keep in mind that a lot of data are lagging indicators (renewals or cancellations, customer satisfaction surveys), or the fidelity of that data may be questionable (customer info is siloed, batched, or outdated).
Here are our top metrics to start with:
- Monthly Recurring Revenue (MRR)
- Annual Recurring Revenue (ARR)
- Customer Lifetime Value (CLV)
- Customer Acquisition Cost (CAC)
- Churn rate
- Expansion revenue
Depending on the maturity or complexity of your CS team and retention strategy, select a forecasting model that will keep you focused on manageable, predictive analysis while allowing room for growth.
Here are some popular options to consider:
- Linear regression
- Cohort analysis
- Time-series analysis
- Machine learning
- Top-down or Bottom-up forecasting
If your sales team owns the renewal process, you can still forecast effectively. Here’s how to optimize your renewal strategy in a sales-led model.
Dig into your metrics to find the stories they’re telling.
With metrics in hand, it’s time to start pulling out the trends, themes, and stories behind the numbers. Consider this the pre-analysis – you will inevitably start to see patterns, as well as gaps where you can source additional data.
The best question to ask before diving deep into analysis: how could we have improved here with better data?
And what you need to highlight (or track down) may depend on your customers:
- Retention outcomes (cancellations, downgrades, discounts)
- Data from other departments (feedback surveys, support tickets, A/B testing, user-generated content)
- Company events or incidents (system outage, product changes)
Understanding customer sentiment matters here. Learn how to use Voice of the Customer insights in renewal forecasting to strengthen conversations and predictions.
Interlude: how ChurnZero can help.
Our Renewal and Forecast Hub is designed for customer leaders to manage the renewals process with clarity and confidence. It features a consolidated dashboard for your revenue and growth metrics, is integrated (and constantly synching) with your CRM, and allows you to manage personal renewal goals for CSMs, team assignments for CS managers, and organizational trends, analysis, and KPIs for CS leadership. Take a look.
Step 2: Outline scenarios that support your data’s stories (and adjust accordingly)
You have your supplies – now it’s time to get organized. Try not to get bogged down in the potential landslide of scenarios, outcomes, and patterns that could arise from your newly collected datasets. After all, the numbers will tell us anything we want (or worry about) if we torture them long enough.
Best to home in on the top scenarios for your team’s retention goals, as well as keep a handy list of red flags to signal churn risk.
Common scenarios to choose from:
- Customer segmentation, personalization, and cohorts
- Customer feedback analysis (NPS, surveys, onboarding check-ins)
- Customer lifetime value (incorporate expansion opportunities)
- Proactive customer communications
- Proactive customer needs and support (based on above scenarios)
Common red flags to watch out for:
- Customer activity/usage levels
- Customer satisfaction (NPS)
- Engagement (or lack thereof) metrics
- Purchase/expansion patterns
- Customer team/contact changes
How can ChurnZero help? Renewal and Forecast Hub incorporates your customer health scores straight from the platform. It allows you to filter, search, and sort options for revenue forecasts, group renewal data by time stamps, team members, segments, and opportunity types, and compare forecasts versus results for team performance, top KPIs, and revenue goals.
Step 3: Build a challenges map (and anticipate obstacles)
No matter how organized your customer success renewals forecasting model and CS team are, there will always be external factors affecting both customer data and how you track and analyze it. Just as this exercise is built on predicting the future for customer success, it’s important to plan for potential business and team challenges. This will keep your CS team grounded and prepared for the inevitable forecasting obstacle.
Construct a challenges list that is true to your CS team’s and company’s circumstances. Here are just a few examples:
Communicating (and integrating) across departments. Data thrives with transparency and collaboration. CS teams will thrive when they ensure strategy and tools are cross-functional with sales, finance, and product.
Non-recurring revenue. Don’t let one-off payments fall through the cracks. Incorporate setup fees, discounts, and any upsell or cross-sell opportunities that don’t factor into your subscriptions or recurring revenue.
Growth and scalability. CS budgets and resources vary depending on the company’s profitability, predicted revenue growth, and even short-term customer and product goals.
Long-term versus short-term forecasting. Strategic planning requires different analysis from tactical or operational decisions. While customer feedback can certainly inform CLV and NRR, it’s pivotal to recognize differences between short-term solutions or real-time customer support from the broader customer journey and CS strategy.
Separating the trends from the noise. As we mentioned before, data interpretation can be fickle. It can be incomplete, siloed, or missing entirely. When you do decipher a pattern, remember to stay wary of random fluctuations and changes.
Economic or market uncertainty. Your team may have its forecasting in top shape, but factors like recession, market dynamics, or global events will affect customer spending and behavior.
How can ChurnZero help? Renewal and Forecast Hub helps you rebalance team resources and identify risks ahead of time, prioritize customer opportunities, and maintain consistent, accurate data to find patterns for customer renewal and cohorts, CSM account outputs, and the effects of product adoption or communications.
Related: drive more renewals by reverse-engineering your buyer’s journey.
It used to be that you could rely on “ROI” as your customer’s primary metric for renewal justification. Today, now that cash flow and cost efficiency reign supreme, you need to reverse-engineer the mindsets of your customer’s finance team. Let Adil Dittmer show you how.
Data-driven customer success renewals forecasting doesn’t just drop the answers into your team’s hands. With the right combination of data collection, forecasting model, and strategy, a CS team can accurately predict revenue and retention, stay aligned with other departments on organizational goals, and proactively share and act on customer insights.
