Contract Renewal Forecasting

This use case explains how to model contract renewals, term structures and retention for telecommunications and IT services businesses in Model Reef.

You will:

• Represent contract terms and cohorts for key products and segments.

• Build drivers for renewal, churn and regrading at end of term.

• Connect renewal behaviour to recurring revenue and device economics.

• Use scenarios to test retention, pricing and re contract strategies.

Model Reef is not a CRM or contract management platform. It models contract behaviour at cohort or segment level, not individual accounts.

When to use this pattern

Use this pattern when:

• You sell fixed term contracts such as 12, 24 or 36 month plans.

• Renewal behaviour and retention are key value drivers.

• You need forward visibility on contracts rolling off and being renewed or lost.

• You want to test different re contract, pricing and upgrade strategies.

It complements:

• Recurring Services Revenue Model

• Hardware or Device Cost Modelling

• Support or Service Team Capacity

Architecture overview

Contract renewal forecasting uses:

• Contract cohorts

  • New contracts written in a given period and plan.

  • Remaining term structure per cohort.

• Renewal and churn drivers

  • Renewal rates at end of term.

  • Churn on expiry.

  • Upgrades or downgrades to different plans.

• Revenue and margin impacts

  • ARPU changes on renewal or migration.

  • Device and subsidy impacts where relevant.

  • Cash timing via billing and payment terms.

• Scenario analysis

  • Different retention and re contract strategies.

  • Portfolio shifts between legacy and new products.

1

Define contract cohorts and terms

Start by defining contract cohorts at the level you want to track, for example:

• Product and plan level for major offerings.

• Broad contract types for smaller or legacy portfolios.

In the Data Library, create drivers such as:

• New Contracts Written per Period per Cohort.

• Contract Term in months (for example 12, 24, 36).

• Contract Type (for example handset inclusive vs SIM only).

These become the base for renewal and churn modelling.

2

Track in force contracts over time

For each cohort, approximate the number of in force contracts over time. A simple approximation is:

• In Force Contracts(t) = Previous In Force minus Normalised Mid Term Churn until expiry.

Where you want more detail, you can model:

• Scheduled expiry period based on term.

• Mid term churn before expiry.

• End of term behaviour at renewal decision point.

Keep this at cohort level rather than individual contract level to keep the model tractable.

3

Apply renewal, churn and migration rules at expiry

Define drivers for end of term behaviour per cohort, such as:

• Renewal Rate (percentage of contracts that renew on a new term).

• Churn on Expiry (percentage that leave).

• Migration Split (percentage that move to each available new plan).

At the end of each cohort's term, allocate in force contracts into:

• Renewed contracts in the same or new plan cohorts.

• Churned customers.

• Upgraded or downgraded plan cohorts.

This can be implemented using formulas that move counts between cohort driver series at the appropriate period.

4

Link renewed and migrated contracts to revenue

Connect contract cohort behaviour to revenue by:

• Associating each cohort and plan with an ARPU or pricing profile.

• Applying different ARPU profiles to renewed, upgraded and downgraded contracts.

• Updating Revenue variables to reference updated cohort based active subscriber counts.

This allows you to see:

• How much revenue is at risk at each renewal point.

• The effect of price changes and re contract offers on ARPU.

• The transition of customers from legacy to new products over time.

5

Integrate device and subsidy effects where relevant

If you bundle devices with contracts, combine this pattern with Hardware and Device Cost Modelling by:

• Linking device subsidies and repayment plans to specific cohorts.

• Ensuring that churn and renewal behaviour carries associated device economics, for example residual instalments or early termination fees.

• Adjusting device replacement cycles for customers who re contract early and receive new hardware.

For simplicity, you can approximate these effects at cohort level using average values.

6

Use scenarios for retention, pricing and migration strategies

Clone the base model into scenario models to explore:

• Different renewal and churn rates at end of term.

• Stronger upgrade programs to move customers to higher value plans.

• More aggressive or conservative price increases on renewal.

• Shifts in contract term structures, for example moving more customers to 24 month terms.

• Campaigns targeting specific cohorts nearing expiry.

In each scenario, adjust:

• Renewal, churn and migration drivers.

• ARPU and pricing profiles for renewed and migrated cohorts.

• Device replacement and subsidy assumptions.

Compare scenarios using:

• Revenue retention and growth over the forecast horizon.

• Margin and device payback metrics.

• Customer lifetime value where you choose to calculate it.

• Cashflow and valuation changes arising from different strategies.

Check your work

• Contract cohort sizes and timing reconcile with historical contract and billing data.

• Renewal and churn assumptions are consistent with observed behaviour.

• Migration flows between products are plausible and align with commercial strategy.

• Scenario results support decision making rather than creating noise.

Troubleshooting

• In force contract counts behave unexpectedly Check term assumptions and ensure mid term churn and expiry treatments are consistent and not double counted.

• Revenue diverges from simpler subscriber models Ensure that the link between cohort based counts and ARPU is correctly implemented and that you are not summing both cohort and non cohort counts.

• Too many cohorts to track Aggregate cohorts into broader groups by product, term and vintage and use average behaviours rather than modelling each small group separately.

Related guides

• Build a Pricing Model

• Build a Relative Valuation Using Fundamentals

• Model Archiving

• Common Size Mode