For most car washes, a lot of time and money is spent on acquiring customers. Since the investment pays off over time, the goal is to have customers stay on your membership program for as long as possible.
Reducing your Churn Rate increases profit and strengthens your business.
It’s much more difficult and expensive to acquire a new customer than it is to retain a current paying customer. Statistically speaking, the cost of acquiring a new customer is 5 – 10X more than retaining an existing one.
Simply stated, Churn Rate is the number of customers you lost over the number of customers you started with over a specific period. This division allows you to see churned customers as a percentage of your customer base.
Using this formula, you can calculate the lifetime churn rate of your business. Just divide the total number of customers you’ve lost by the total number of customers you have.
To illustrate, let’s say you had 100 customers at the beginning of the month, and you lost 5 of those customers at the end of the month. This would equate to a 5% churn rate.
It’s important to note that you can still have churn while experiencing customer growth. In fact, your growth is the difference between acquisitions and churn. It’s easy to see how reducing churn has as much of an impact on your growth rate and revenue as customer acquisition.
What is Average Customer Lifetime?
Now that you have your Churn Rate, the next metric is Average Customer Lifetime. Average Customer Lifetime (ACL) is an extremely useful variable for other customer calculations. By taking 1 divided by your churn per period you can estimate how many periods the average Unlimited Wash Customer (UWC) will stay on the plan at your car wash.
For example, if you have an annual churn rate of 25% then dividing 1/0.25 results in a 4 year
ACL. Similarly, if the monthly churn rate was 4% then you’d have 1/0.04 which would yield an ACL of 25 months.
What is Customer Lifetime Value?
Customer Lifetime Value, expressed in a detailed or more general formula, is typically defined as the value you can expect from a given customer’s purchases over the entire life of the UWC customer relationship.
To simplify Customer Lifetime Value (CLV) can be calculated by multiplying average UWC Monthly Member Revenue by the Average Customer Lifetime as shown on the illustration bellow:
For the sake of this calculation let’s say your average UWC monthly membership is $25. If you have a monthly churn rate of 8% then dividing 1/0.08 results in a 12.5 month ACL. Under this scenario CLV = $312.50.
But if your Churn Rate was 3.5% then 1/0.035 results in 28.5 months and under this scenario CLV = $712.50.
Can Churn be Predicted?
The ability to predict that a customer is at a high risk of churning (while there is still time to do something about it) represents a huge additional potential revenue source for every car wash. Besides the loss of revenue that results from a customer abandoning the UWC program, the costs of initially acquiring that customer may not have already been covered by the customer’s spending to date (advertising, commissions, etc.).
Micrologic’s Predictive Churn Algorithm enables you to reach your UWC customers at the right time on the right channel by sending automated and proactive notifications to improve customer engagement. Doing so with the right content/promotion will turn them from a customer than churns to one that stays. Data modeling algorithms and machine learning capabilities developed at Micrologic can help car wash customers solve this problem.
How do you Reduce Churn?
The Micrologic “Decline Minimizer” software feature can help you reduce monthly churn by keeping credit card data updated. Each night the system automatically checks to see if a credit card that is being billed for the monthly account has been updated. This eliminates the need to contact the customer directly. Some sites have seen up to a 60% reduction in declined credit cards! In addition, no credit card data is stored on your computer.
Customer Churn Rate is easily one of the most essential metrics when measuring the performance of your Unlimited Wash Club. Reducing churn is a key performance indicator (KPI) for every car wash business.
In closing, understanding what’s happening at your wash and developing a strategy with the right partners will have a huge impact on how your customers relate to your brand and how long they remain loyal.