One of the key metrics to keep an eye on when operating a subscription business is the value of a single customer to your business. Why is this important to know and focus on? Put simply it then allows you as the operator to understand the profitability of your subscription business.
The Customer Lifetime Value (CLV) minus all the costs that go into acquiring (e.g. the Customer Acquisition Cost (CAC)) and managing (e.g. vehicle maintenance, telematics, customer experience) gives you the profitability of each subscriber and it’s what makes your business either profitable or cash burning. To this point, it makes sense to optimise the CLV for profitability and below are the determinants that allow you to do this.
What are the determinants of your Customer Lifetime Value?
As mentioned above your CLV is essentially a proxy to the profitability of your subscription business. The calculation of your business’ CLV is simply the multiple of the average monthly income earned from each customer and the average duration of each customer. If for instance you earn on average $1,000 from each customer per month and each customer on average subscribes to a vehicle for seven months (which we see as about average) then the CLV for your business would be $1,000 x 7 which is equal to $7,000 which isn’t a bad starting point.
How can you improve your Customer Lifetime Value?
Using the determinants above you can see that the two drivers of your CLV are money earned per subscription and the length of each subscription on average. Thus you have a few options to improve your CLV.
- Increase the price of your subscription offering through means such as price increases or alternate fleet that attract higher prices
- Bundle in/offer add-ons such as distance boosters, additional drivers and other ancillary products that give you extra revenue per subscription
- Create an ecosystem around the subscription that enables you to increase billings such as a margin on tolls or fines incurred or through partnerships with insurers and roadside assistance providers as applicable
Length of subscription
- Utilise the minimum term on your subscription plans to ensure that subscribers are taking vehicles out for a period of time that ensures you have a minimum CLV per subscription
- Incentivise subscribers to stay in their subscriptions for longer, for example this could be some kind of loyalty bonus on completion of their minimum term or other milestone
- Offering vehicle swaps at the end of the minimum term or similar to give your subscribers the flexibility they want/need while ensuring they remain engaged with your fleet and brand
Implementing effective customer retention strategies is essential to maintaining and increasing the length of each subscription. Some strategies to consider include:
Tailor your subscription offerings to better suit individual customer needs, preferences, and driving habits. This can create a more appealing, customized experience that encourages customers to stay with your subscription service longer.
Develop loyalty programs that reward customers for their continued subscription, such as discounts, exclusive offers, or priority access to new vehicles. These incentives can help retain existing customers and even attract new ones.
Maintain open lines of communication with your subscribers, ensuring they are well-informed about their subscription plan and any upcoming changes. Regularly soliciting feedback can also improve customer satisfaction and provide valuable insights into how to enhance your offerings.
Provide exceptional customer support to address any issues or concerns your subscribers may have. A responsive, helpful support team can greatly contribute to a positive customer experience and increase the likelihood of subscribers continuing their subscriptions.
Analyze Churn: Analyze the reasons why customers are leaving your subscription service and take steps to address these issues. This can help you identify areas for improvement and develop targeted strategies to retain more customers.
Offer flexibility in terms of subscription plans, allowing subscribers to easily upgrade, downgrade, or pause their subscriptions based on their changing needs. This can help prevent customers from seeking more flexible alternatives elsewhere.
Data-Driven Decision Making
Leveraging data is crucial to optimizing your CLV and understanding your customers. Use data analysis to:
Identify high-value customers
Recognize customers with high CLVs and focus on retaining them. Implement targeted marketing campaigns and personalized offers to enhance their experience and satisfaction.
Detect early warning signs
Monitor customer behavior to identify early indicators of potential churn. Proactively address potential issues and take appropriate action to retain these customers.
Segment your customers
Divide your customer base into segments based on factors like demographics, usage patterns, and preferences. Tailor your offerings, marketing efforts, and customer service strategies to better cater to each segment's unique needs.
Optimize pricing strategies
Analyze customer behavior and preferences to optimize your pricing strategies. This can help you strike the right balance between maximizing revenue and ensuring customer satisfaction.
Continuously monitor and evaluate the performance of your CLV improvement strategies. Make data-driven decisions to adjust and optimize these strategies as needed.
In summary, optimizing Customer Lifetime Value in the car subscription industry is crucial to ensuring profitability and long-term success. Focus on increasing revenue, lengthening subscriptions, implementing effective retention strategies, and leveraging data to make informed decisions. These efforts will result in a more profitable and sustainable subscription business that is better equipped to thrive in an increasingly competitive market.