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Nima Idel

Head of Product Growth
 @ 
Loopit

While car subscription is still a relatively new concept, the structure of applying a vehicle premium to the cost of a subscription plan to determine the final recurring cost is quickly being accepted as industry standard.

The best analogy for this structure is a cell phone plan, where you choose a plan which typically includes a data limit, international call costs, etc. then pair this plan with a mobile handset, where the latest iPhone would attract a higher premium compared to a previous generation Samsung device.

Calculating the Vehicle Premium

The final cost of the vehicle premium depends on a number of factors:

Vehicle Depreciation

The cost of the car subscription plan should take into account the expected depreciation of the vehicle over the subscription period. This means factoring in the original purchase price, age of the vehicle, and any wear and tear that may occur during the subscription period.

Insurance Costs

Insurance costs are a significant expense when it comes to car ownership, and the same is true for car subscription plans. The cost of insurance can vary widely depending on the make and model of the vehicle, as well as the driver's age, driving record, and location.

Maintenance and Repair Costs

The cost of maintaining and repairing the vehicle during the subscription period should also be factored into the pricing. This includes regular maintenance such as oil changes and tire rotations, as well as any unexpected repairs that may be needed.

Market Demand

The price of the car subscription plan should also be influenced by market demand. If a particular make and model is in high demand, the subscription price will likely be higher than for a less popular vehicle.

Remaining Warranty

If the vehicle is still covered under its original manufacturer's warranty, the subscription price can be adjusted accordingly, as the cost of any covered repairs during the subscription period will be lower.

On the other hand, if the warranty has expired, the subscription price may need to be adjusted to account for the potential costs of any repairs that may be needed.

Features and Options

The price of the car subscription plan should also take into account the features and options that are included with the vehicle. A more expensive vehicle with more features and options will typically have a higher subscription price than a more basic model.

Competition

Finally, the pricing of the car subscription plan should be competitive with other similar services in the market. This means taking into account the prices of other car subscription plans that offer similar makes and models of vehicles.

Ensuring Subscription Profitability

Applying these factors consistently to ensure sustainable subscription profitability at the individual vehicle level is easier said than done, and is a role better suited to a dedicated car subscription management platform such as Loopit.

As a rule of thumb, the vehicle premium tends to fall between 1-2% of the retail value of the vehicle as a weekly fee - however this is not a rule that can be applied universally without further consideration.

Take for example a BMW that may be six years old, and a brand new Mazda. Each of these vehicles may have a similar retail value however the likely costs across depreciation, warranty, maintenance and repair would be vastly different.

A SaaS Approach to Subscription Vehicle Premiums

Loopit has solved this premium problem with a proprietary pricing engine that will automatically generate a weekly vehicle premium for any specific vehicle based on the factors discussed above.

Administrators then have the ability to add price modifiers to make fine adjustments to final price and apply this across the entire account, across certain makes and models, or simply to a specific vehicle.

About the Author

Nima is a highly experienced Product Leader with a track record of successfully leading cross-functional teams to deliver innovative and market-leading products. With over 15 years of experience in the design and product segment. Nima is also an expert in Agile product development methodologies, and is skilled at leading teams through the entire product development cycle.

Nima Idel

Head of Product Growth
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Technology Standards
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Regulatory Environment
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Profitability Analysis
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Performance Metrics
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Operational Requirements
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Defleet Management
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Technology Partners
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What is Car Subscription?
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Back-End Operations
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Digital Customer Experience
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Captives & Incumbents
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Subscription Models
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Subscription Agreement
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Fair Wear and Tear Policy
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Incident Management
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Scaling Your Business
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Vehicle Profitability
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Subscription Metrics
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Bookkeeping & Accounting
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Breaches and Repossessions
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Accounts Receivables
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Customer Assessment
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Vehicle Collection and Handover
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Vehicle Monitoring
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Vehicle Management
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Application and Pre-Approval
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Car Subscription Website
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Car Subscription Plans
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Customer Acquisition
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Marketing Strategy
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Payment Guidelines
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Identification Guidelines
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Car Subscription Business Models
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Key Personnel Roles
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Defining the Business Structure
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Subscription vs Ownership
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The Future of Automotive Retail
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Arrears Management
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Breaches & Repossessions
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