Automatic license renewals: twenty months later
About twenty months ago, while sitting on a couch in Auckland, New Zealand, my team and I flipped the switch to enable automatic renewals for AffiliateWP. Two months later we did the same thing for Easy Digital Downloads and Restrict Content Pro. This was a move that we had been working towards for nearly a year and it’s one that we believed would fundamentally change the position of the company over the next one to two years. Now that it has been twenty months, maybe we can answer the question: were we right? Did it make a significant impact for us or was it all futile hopes?
Historically we, like many other online product companies, have struggled with low renewal rates. All of our products are sold with annual licenses that should be renewed each year so long as the products are in continued use. Renewal revenue is a critically important part of growing any online business because it reduces the expensive process of customer acquisition. Your revenue isn’t purely a factor of how many new customers you obtain, it’s a combination of your new customer acquisition and your existing customer retention. If you have great customer retention, you can grow your annual revenue year after year without having to rely on increasing the number of new customers acquired year over year.
Our goal with implementing automatic renewals was three-fold:
Reduce friction and effort for customers. Easy systems == happier customers.
Increase renewal revenue by reducing the number of “forgotten” renewals.
Provide a predictable revenue stream we could rely on and adequately forecast against.
Let’s start determining if we were successful by looking at some previous year stats.
Table of Contents
Easy Digital Downloads
Here are some quick stats on our previous years with Easy Digital Downloads:
Total revenue in 2014: $474,622.54
Total revenue in 2015: $561,269.06
Renewal revenue 2015: $80,799.26
Total revenue 2016: $597,352.61
Renewal revenue 2016: $139,850.03
In 2015 we brought in $80,799.26 in renewal revenue. That’s revenue from existing customers that renewed their license keys. This number means only 14.4% of our total revenue in 2015 came from renewals. Ouch. While $80,000 isn’t a small number and is a nice addition to our annual income, it’s abysmally small when you recognize how few customers were coming back and purchasing renewals.
Our 2016 renewal revenue was higher at $139,850.03 but still only accounted for 23.41% of our total revenue that year.
AffiliateWP
For AffiliateWP, we have pretty similar patterns between 2014 and 2016.
Total revenue in 2014: $119,651.50
Total revenue in 2015: $379,078.36
Renewal revenue 2015: $19,774.60
Total revenue 2016: $491,890.90
Renewal revenue 2016: $62,827.80
For 2015, our renewal revenue accounted for only 5.22% of our total annual income. This is super drastic, though it does look worse on the surface before realizing part of the reason the renewal revenue was so low was because 2015 saw incredible growth for AffiliateWP. We more than tripled our 2014 revenue by bringing in a lot of new customers so our new customer acquisition was rapidly out pacing our existing customer base from 2014.
In 2016, we saw $62,827.80 in income from renewals, accounting for 12.77% of our revenue that year.
Restrict Content Pro
Again, Restrict Content Pro shows pretty similar patterns of abysmally low renewal income ratios.
Total revenue in 2014: $67,211.75
Total revenue in 2015: $83,806.60
Renewal revenue 2015: $10,460.30
Total revenue 2016: $157,486.89
Renewal revenue 2016: $21,706.60
In 2015, we brought in $10,460.30 from renewals, accounting for 12.48% of the year’s revenue. And in 2016 we saw $21,706.60 in renewals, or 13.78% of the total revenue that year.
Easy Digital Downloads in 2017
Automatic renewals for Easy Digital Downloads were enabled on March 30, 2016, which means the first payments to be processed by the resulting subscriptions would occur on March 30, 2017. This is important because it means the first three months of 2017 had the same manual renewals as previous years. Based on speculations, automatic renewals should dramatically increase the amount of revenue that comes from renewals.
Did it?
Total revenue so far in 2017, January 1 to August 1: $463,835.92
Renewal revenue so far in 2017, January 1 to August 1: $166,716.98
Revenue from auto renewals in 2017, March 30 to August 1: $90,297.20
Thus far, 35.94% of our Easy Digital Downloads revenue has come from renewals. That’s 12.53% more than in 2016, so a really good sign that automatic renewals are having a significant effect.
Of the $166,716.98 in renewal revenue, $90,297.20 of it was from automatic renewal payments processed with subscriptions. So 19.47% of our total revenue in 2017 has come from automatic renewals. That’s pretty good on the surface, but actually it’s really good. Why? Simple: automatic renewals didn’t start processing until the beginning of the second quarter of 2017 and yet it has already accounted for nearly 20% of our total yearly revenue.
If we look at March 30 to August 1, the time period that automatic renewals have been processing, we see that renewal revenue accounted for 38.72% of our revenue.
Here’s a graph that shows monthly license renewals for 2017. Can you see the point when automatic renewals began processing?
AffiliateWP in 2017
Automatic renewals for AffiliateWP began processing on January 21, 2017, so most of 2017 has included automatic renewals, unlike Easy Digital Downloads and Restrict Content Pro.
Total revenue so far in 2017, January 1 to August 1: $443,996.90
Renewal revenue so far in 2017, January 1 to August 1: $101,453.35
Revenue from auto renewals in 2017, January 21 to August 1: $89,686.40
22.85% of our 2017 revenue has come from renewals, and 20.2% was from automatic renewals. Just 2.65% came from manual renewals.
In 2017 we have had $101,453.35 in renewal revenue. In 2016 we had just $62,827.80. We’ve nearly doubled our renewal revenue and there are still four complete months left in 2017. Obviously some of that increase is due to natural growth, which we’ve continued to see for AffiliateWP, but it’s still a significant increase that I believe is largely attributed to automatic renewals.
If we exclude the first 20 days of January, we find that renewals have accounted for 24.20% of our revenue in 2017.
Here’s a graph showing license key renewals over time for AffiliateWP:
I don’t think I need to point out when automatic renewals were enabled.
Restrict Content Pro in 2017
The numbers for Restrict Content Pro in 2017 do share similarities with the other two products but it has one significant difference that needs to be noted. Throughout 2016 and 2017, one of our primary focuses has been to revitalize Restrict Content Pro and bring it back to a strong position within our product portfolio. I’ve written about these efforts and the results so far previously. I mention this because much of the growth Restrict Content Pro has seen in the last 20 months can be attributed to automatic renewals and extensive revitalization work.
Total revenue so far in 2017, January 1 to August 1: $184,686.45
Renewal revenue so far in 2017, January 1 to August 1: $28,503.85
Revenue from auto renewals in 2017, March 30 to August 1: $16,165.80
In 2017, 15.43% of our revenue has come from renewals. 8.75% of that was from automatic renewals. This is an increase over previous years but not too terribly drastic. It is, however, still significant when we recognize that automatic renewals did not begin processing until the beginning of the first quarter of 2017.
If we look at March 30 to August 1, the time period that automatic renewals have been processing, we see that renewal revenue accounted for 19.22% of our revenue.
The graph below shows the growth of license renewals overtime. There is a pretty distinct increase in April that continues through the end of July. That increase is the result of automatic renewals.
Wrap up
I think the numbers mostly speak for themselves and really show that automatic renewals are having a significant impact on the financial state of the company. I look forward to seeing whole-year numbers after we’ve had automatic renewals processing for more than just a few months.
Restrict Content Pro’s 2017 revenue has already passed that of 2016, AffiliateWP is less than a month away from beating 2016, and Easy Digital Downloads is two months away from surpassing 2016. There are still four complete months left in 2017 and one of those includes our historically best month: November.
We need to make an important note here regarding the price increase we did at the end of 2016 and early 2017. The price increase did not affect any existing subscriptions, so the majority of the renewals we’ve seen so far in 2017 have been at the previous, lower price. So even though our renewal revenue is mostly at a lower price point than new sales, the percentage of the total that renewals account for is still significantly higher that it was previously. Once we are seeing the majority of renewals come in at the new, higher price, we’ll see even more significant results.
There are a number of really excellent effects automatic renewals have contributed to, but there are two in particular that I would like to highlight.
First is the ability to reliably forecast our expected revenue month-to-month. We now have a reliable data set that provides us with much more accurate predictions for future revenue, and that is incredibly valuable, especially when making decisions about company investments and weighing risks.
Second is our profit margin. One of downsides to increasing revenue through new customer acquisition is the added support and development burden that entails. The burden of adding $10,000 per month from new customers is not minimal at all. In fact it can be a real challenge. One of the reasons companies hire new employees is to help meet the demand brought on by the new customers. This often creates an endless cycle of growing your expenses as quickly as your revenue. Adding $10,000 to your monthly income doesn’t make much difference if you also add $10,000 in new expenses each month simply to help manage that new $10,000 you brought in.
Renewal revenue, however, doesn’t require the same maintenance that new revenue does. In other words, if we earn $100 from a new customer, it is likely that we will have to spend $80 helping that customer. If, however, we earn $80 in renewal revenue from an existing customer, we most likely won’t spend more than $20-30 helping them, if that. The reasoning is simple: renewing customers cost significantly less because the maintenance for them has already been done.
Existing customers are so much cheaper than new customers, so it only makes sense that we should do the very best we possibly can to increase the revenue generated from those existing customers. If we do that, our profit margins will get better and better, and that is precisely what we have seen.
Our previous years have all been profitable in the end, sometimes not very profitable but profitable nonetheless. 2017, however, has seen a completely new trend. We are not only showing profit every month, we are showing monthly profit that is greater than all previous annual profits, and we’re seeing it every single month but one so far. Which month didn’t see that level of profit? January, right before automatic renewals began taking place. Coincidence? Absolutely not.
I’ve previously mentioned that I believed transitioning to automatic renewals would likely be one of the best things we ever did. Today I’m more confident of that prediction than ever.
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