In plain words
A renewal curve is the list of renewal rates by order number. The first value is the share of new subscribers who take a second order. The next is the share of those who then take a third, and so on.
The curve is rarely flat. The first renewal loses the people who subscribed for the discount, so its rate is the lowest. Those who stay are the ones who like the product, and their rate climbs and levels off. A single average retention rate replaces this shape with a straight line, and gets the early months wrong.
Formula
- Rate at renewal n = subscribers who take renewal n ÷ subscribers who took the order before it
- Share still subscribed after n renewals = rate₁ × rate₂ × … × rateₙ
Worked example
A curve that starts at 70.0% and settles toward 90% runs 70.0%, 80.0%, 85.0%, 87.5% over its first four renewals. On it, the engine puts a coffee subscriber's twelve-month value at $53.29.
Replace the curve with a flat 85.0% at every renewal and the same subscriber appears to be worth $60.56, and to pay back in month 4 where the curve says month 5. The flat rate keeps too many subscribers through the early orders.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
A renewal curve is not a survival chart
A survival chart shows the share of the original cohort still subscribed at each point, which always falls. The renewal curve shows the rate at each step, which usually rises. They describe the same subscribers. Multiplying the curve's rates together gives the survival chart.
Using it
Take the curve from your subscription app, by order number, for subscribers who started on the same offer. A curve from subscribers won at full price will not describe ones won with a deep discount. With thin history, use two numbers you can defend: the first renewal's rate and the rate subscribers settle at.
In Offer Suite
Offer Suite's simulator takes a renewal curve per renewing option, either as a list of rates or as a first rate and a settled rate. The curve is the brand's own: renewal rates are not yet observed from its orders, and the simulator refuses to guess one.
Source: Offer Suite's offer simulator.