Revenue forecasting can be overwhelming. It is even more overwhelming for a newly promoted customer success or account management leader, and is similarly stressful for a seasoned leader who has direct revenue responsibility for the first time. I was there in 2016. On my first day of my new job at Mavenlink (now Kantata), my boss informed me that there were some internal changes and I was going to be responsible for expansions and renewals. In my past roles, contract renewal cycles were 5+ years and multi-million dollar annual contract values, so the company founders handled them. The idea of me having to learn the strategic and tactical motions of revenue expansions and renewals, while learning a new company, a new SaaS product, and building and leading a team, was daunting. This blog post aims to help others who may be in that same place. 

Let’s start by level-setting: Software as a Service (SaaS) subscription business models rely heavily on customer renewals and expansions to drive growth and profitability. As such, accurately forecasting these metrics is critical for long-term success. Fortunately, there is a relatively easy way to forecast renewals and expansions in a SaaS subscription business model.

1. Look backward to look forward: Start with historical data – the first step in forecasting renewals and expansions is to gather and analyze historical data. This data should include information on the renewal and expansion rates of current customers, as well as data on churn rates and new customer acquisition.
2. Define the renewal and expansion rates: Once you have the historical data, you can use it to define the renewal and expansion rates for your business. The renewal rate is the percentage of customers who renew their subscription at the end of each contract term, while the expansion rate is the percentage of customers who upgrade or add new services to their subscription. These “add ons” may occur mid-cycle (in the middle of the contract term) or on the renewal itself (additional licenses or recurring services are added at the time of renewal). This is a good thing in either scenario. 
3. Apply the renewal and expansion rates: With your defined renewal and expansion rates, you can now apply them to your current customer base to forecast renewals and expansions. For example, if you have 1,000 customers with a renewal rate of 90% and an expansion rate of 20%, you can expect 900 renewals and 200 expansions.
4. Factor in new customer acquisition: In addition to forecasting renewals and expansions from your current customer base, you’ll also need to factor in new customer acquisition. This can be done by estimating the number of new customers you expect to acquire and applying the same renewal and expansion rates to them.
5. Monitor and adjust: Finally, it’s important to monitor your renewal and expansion rates over time and adjust your forecasts accordingly. For example, if you notice that your renewal rate is decreasing, you may need to implement strategies to improve customer retention.

To bring those steps to life, establish a relationship with your finance and accounting team. If you have a sales operations team, become best friends with them too. Explain that you are taking on a new responsibility and need to ensure alignment with them so that forecasting is accurate. Protection and growth of revenue is the primary mission of a subscription based business. 

Another helpful dimension in revenue forecasting are the tools and templates to enable efficiency and accuracy. There are several resources you can use to help you with expansion and renewal forecasting in B2B SaaS. Here are some options:

Spreadsheet templates: Excel or Google Sheets can be used to create templates for forecasting expansion and renewal revenue. You can create a simple spreadsheet with columns for customer name, current contract value, renewal date, expected renewal value, and expansion potential. You can also use formulas to calculate renewal rates and projected growth rates.

CRM software: Customer relationship management (CRM) software can help you track customer data, including contract values, renewal dates, and communication history. You can use this data to forecast expansion and renewal revenue. Popular CRM software options include Salesforce, HubSpot, and Zoho.

Business intelligence tools: Business intelligence (BI) tools like Tableau, Power BI, and Looker can help you visualize and analyze data to identify trends and patterns. You can use these tools to create dashboards that show your expansion and renewal revenue forecasts and help you make data-driven decisions.

Revenue management software: Revenue management software like Zuora and Chargebee can help you automate billing and subscription management, which can make it easier to forecast expansion and renewal revenue. These tools can also help you identify upsell and cross-sell opportunities.

Financial modeling software: Financial modeling software like Planful and Workday’s Adaptive Insights can help you create detailed financial models and forecast different scenarios for expansion and renewal revenue. These tools can also help you identify risks and opportunities.

In conclusion, forecasting renewals and expansions in a SaaS subscription business model is critical for long-term success. By starting with historical data, defining renewal and expansion rates, applying those rates to your current and new customer base, and monitoring and adjusting over time, you can develop accurate forecasts that will help you make informed business decisions. Be sure to leverage tools and templates to help you with expansion and renewal forecasting in B2B SaaS, including spreadsheet templates, CRM software, BI tools, revenue management software, and financial modeling software.