Should you count late renewals as churn?

Imagine you have a customer whose contract expires on December 31. Despite their Customer Success Manager’s best efforts, they haven’t renewed by January 1. While it appears that they’ve churned, everyone knows they’re probably going to renew sometime in Q1, but it may take a few weeks to negotiate their new contract for the year.

Should you count that customer as churn starting on January 1st?

Gaps in contracts are common

Well, if this scenario sounds familiar, you’re in good company. A lot of B2B SaaS businesses experience gaps in contracts in some form or another.

Some businesses sell annual contracts to organizations that operate seasonally, like educational institutions that might be up for renewal in July but not actually renew until right before school starts in August.

And, of course, there are always customers that are simply late in renewing their contract because they’re looking to negotiate the best possible terms.

Gaps in contracts can cause a lot of confusion when you’re looking at your retention metrics. Let’s explore how to handle them!

During the gap between contracts, do customers count as churn?

Churn metrics aren’t GAAP metrics, so there isn’t one right way of handling them. That means it’s up to you to decide how to define churn for your business.

👉 We recommend giving renewals a set period (usually one or two months) where they count as in flux, and not officially churn yet.

Designating lapsed contracts as in flux allows you to tentatively count them as renewals in your metrics, without skewing your numbers and requiring correction later if they don’t renew.

Before doing this, it’s important to consider how many of your lapsed contracts actually end up renewing within your chosen time frame.

If very few renew, then this isn’t the right approach for your business, and you can just count them as churn.

But, if a high percentage renew within a month (or whatever period you designate), then it makes sense to temporarily count them as in-flux renewals.

Track your renewal and churn metrics without the hassle

You’ll want to be able to tag your renewals as in flux in your tech stack so that your churn metrics aren’t misleading. In Subscript, you can toggle In Flux on or off when viewing your SaaS metrics.

When In Flux is enabled, lapsed contracts are treated as renewals, but they’re put in their own category for you to see. When it’s disabled, they are counted as churn.

This way, you can instantly see the impact these contracts have on your metrics, and you can choose the view that makes the most sense for the questions you need to answer.

Subscript gives you access to all of your B2B SaaS metrics, including ARR, churn, LTV, and more, in a visually intuitive dashboard. That way, you’ll spend less time digging through data in Excel, and more time gaining helpful insights.

Interested in seeing how it works? Let us show you around.