Churn or Churn Rate is a key metric to watch as part of a subscription business. It’s important to note however that there are various types of churn - natural, regrettable and non-regrettable and not all churn is equal. It’s important to understand the drivers behind each type of churn, determine ways to minimise your churn in all three areas and eventually increase the lifetime value of your subscribers by keeping them in your vehicles and/or business for a longer period of time.
How Do You Measure Churn?
Churn is simply a measure of the percentage of your subscribers who stop subscribing to your business/vehicles in a given period of time. Take for example that you had 100 subscribers and in a given month, two of those subscribers elected to return their vehicle and not continue subscribing - your churn rate for that month would then be 2/100 or more simply in a percentage format - 2%.
What Are The Different Types Of Churn?
Churn comes in various forms and essentially falls into three categories - natural, regrettable and non-regrettable. We define these three forms further below as;
- Natural Churn - this type of churn is essentially unavoidable and renders you relatively powerless to stop. An example of this may be a subscriber taking out a vehicle on subscription for six months as they need a vehicle for six months only. This could be because they are an international student, transient worker or similar. At the end of this six months they will return this vehicle and so while counting towards a “churned” or “lost” customer, they were always going to churn at this point in time
- Regrettable Churn - this is churn that you could have possibly prevented. Reasons for this type of churn could be a poor customer/subscriber experience, lack of vehicle choice or price sensitivity
- Non-regrettable Churn - this type of churn is in some ways good for your subscription business as you are happy that the subscriber has ended their subscription and returned the vehicle. An example of this may be a subscriber that is in arrears and has no intention of paying their outstanding balance. In this instance ending their subscription so you can put the vehicle out with another subscriber is a good scenario and represents non-regrettable churn
What Is A Good Churn Rate?
To determine what a good churn rate is you need to almost exclude your natural churn as that as mentioned above, can in some ways not be altered. Once you exclude natural churn we are seeing subscription businesses in the automotive space on average with roughly a 4% churn rate per month.
What Are Some Tactics To Reduce Your Churn Rate?
The same with determining what a good churn rate is, you almost need to exclude natural churn from your calculations or take measures to ensure natural churn isn’t likely in your business - for example this could be profiling your incoming subscribers to determine how long they want to subscribe for and then not subscribing out vehicles to individuals and/or businesses that will exhibit this type of churn in the future.
For the two other types of churn;
- Regrettable Churn - to reduce this type of churn you need to understand the drivers that caused the churn in the first instance. The easiest way to do this is to survey your subscribers at the point of ending their subscription and the vehicle coming back. Once you know the drivers (e.g. customer experience, vehicle choice, price sensitivity) you can then put into motion changes to reduce this type of churn going forward. Another good tactic when performing this survey is to offer the subscriber a discount/incentive before they cancel or to reward ongoing subscribers with incentives to keep them happy/engaged and to reduce the likelihood of regrettable churn
- Non-Regrettable Churn - the best tactic to reduce this type of churn is to perform extra diligence at the onset of a subscription. In general most non-regrettable churn happens when the subscriber is a bad subscriber and you want the vehicle back - so stopping the subscription before it commences is the best form of prevention here. Another factor in non-regrettable churn can also be when you as the business want the vehicle back and so you want the subscription to end - in this case better planning and/or stock availability so you can swap the subscriber into an alternate vehicle represents a good tactic
Churn comes in many forms and a failure to adequately measure, plan, learn and iterate can lead to what is termed a “leaky bucket” whereby you have more subscribers ending their subscription than subscribers entering a new subscription. This has the flow on effect of lowering fleet utilisation rates and ultimately business profitability so churn is a key metric to focus on.
Utilising the above tactics and guidelines you can however ensure you take this metrics seriously and continue to grow your subscription business at a profitable rate.