they could have renewed year by year.

Not if Colbert and probably a number of other people would have demanded a multi-year commitment if they were going to continue. For all we know Colbert was ready to hand things over to another host since he is in his 60s now, but the network didn’t want to bother. The replacement strategy was a hypothetical, they might instead invest in yet another drama or maybe a sitcom or something and not even try to fill the role that variety style shows historically filled and cede that to other media and independent streamers.

If they were so financially motivated that of course they should have wanted to keep the show running, they probably would have announced transitioning to a new host, perhaps behind the scenes insisting that they lay off the Trump coverage. Trump would have loved the narrative of personally getting Colbert out of the late night show that he himself used to be a part of a fair amount back in the 80s being interviewed by Letterman. Telling Trump they are “getting the woke out of the show” would probably make him even happier than just canning the entire show.

Trump might have been a factor in closing it out sooner, though if Colbert was of a mind to hand things over to a new host instead of going for another few years then that certainly would have been a plausible decision point too. It’s just hard to really know and it’s worth the caveat that any theory, Trump or otherwise, is speculative and might have a different level of accuracy than we can guess right now until the key people say more than has been said.