So you’ve successfully made a sale by converting a customer into a subscriber for your monthly unlimited wash club. Both you and the customer are happy. But, suddenly this customer decides to cancel the subscription and stop using your wash after only a couple weeks. What happened? When did you find out about it? Where did things go wrong? At its most basic level, customer churn refers to the proportion of your total subscribers who leave during a given period of time. Subscription-based companies like cell-phone services or monthly software apps live and die based on the rate of customer churn.
This was the first year, however, a colleague at The Car Wash Show in Las Vegas pulled me aside to talk about ways to combat churn at the wash. As he delved deep into how he refined his formula to calculate and monitor customer churn and use it as the primary key performance indicator (KPI) for his business, I quickly realized that, as monthly wash programs mature, an express-exterior car wash focusing on them has as much in common with Comcast as it does a full-serve. Simply measuring the total number of subscribers doesn’t cut it; you must understand the flow of customers in and out of your program that’s missed by only measuring total subscribers. Monthly unlimited programs are a recurring revenue business. In order for revenue to recur, your customers must renew at a rate that outpaces churn. Churn can result from any number of reasons: weak customer service, a poorly upgraded service, a better offer from the competition, or failure to earn positive top of mind awareness from subscribers. I’ll address each below.
DEFINE YOUR KPI TO MEASURE CHURN
Like most things, when looked at closely, there’s more to it than meets the eye. The basic definition of a monthly customer churn rate is the number of customers who canceled a subscription in the month divided by total number of customers in the month. The top number is easy; just add how many existing customers cancelled to how many cancelled before finishing the first month. The bottom number is a bit more complicated. How do you count the total number of customers in a month? Some people use the number of customers at the beginning of the month. Others use the end of the month. Still others average the number of customers at the start and end of the month. What’s important is that you pick your model and stick with it, so you can measure the change, which is what matters.
Feel free to skip the next paragraph of math and jump to the easy method I’ll detail next, but I think it’s useful to look at how this formula works. Imagine you use this calculation for two consecutive months using the beginning subscribers as the denominator. In both months 5 percent of your subscribers cancel. In both months you add 100 subscribers. That means you start month one with 1,000 subscribers and 50 cancel (1,000 x 5%) resulting in a churn of 5 percent (50/1,000).
Now month two starts with 1,050 (1,000+100-50) and loses 53 (1,050 x 5%) also resulting in a churn of 5 percent (53/1,050) since the inputs were the same.
The reason measuring churn is so important and so many subscription-based companies focus on it is because it quickly exposes flaws in customer retention that would be missed by looking only at total subscribers. Imagine in the example above that you added 125 customers in month two instead of 100 and lost 65 instead of 53. Looking at only the numbers you might think hey, things are going well, I added more customers than the month before and lost about the same, ending the month up with 1,060 subscribers. All is good, right? Plug the numbers into the churn formula however (65/1060) and your churn rate is 6.1 percent, indicating something is far from all right.
Your promotions are working better than expected to acquire new members, but something has changed to cause customers to leave your unlimited wash club at a faster pace than the previous month. Is there something wrong with the wash, your staff, your pay station, or did a competitor upgrade their service offering to draw customers away? Monitoring customer churn notifies you of potential problems in time to correct course before the problem escalates. Now the good news, you can likely skip the math altogether. Chances are that if your POS system manages monthly memberships for you it already has a churn report available, you just have to find it and make it one of the top KPIs you manage at the wash.
PROACTIVELY PREVENT CHURN
Now that you’re monitoring customer churn to alert you to any problems, let’s look at the steps you should be taking to ensure that churn stays flat, or goes down month to month. To start, delivering an excellent wash is not enough. You must craft an experience and deliver it consistently. That means predictable amenities, predictable wait time, predictable staff interaction, predictable everything. When something breaks, repairs must be done immediately, certainly within 24 hours. Your ability to provide a consistent experience every time is the foundation for customer retention.
DON’T MAKE CUSTOMERS THINK
Whether you use an RFID pass, or invest in a newer license plate recognition system, never make customers think about using their membership. Sure, club cards may work, but an automated entrance system isn’t only about locking the subscriber to a single vehicle for the small percentage of customers looking to abuse the membership, it removes the need to think about bringing the card for the large percentage of customers struggling to find the time to wash once a week. The same goes for managing monthly payments. Contacting a customer to update an expired credit card number forces them to think, and one of their thoughts may be do I really need to continue the subscription. Instead, configure your POS system to ask them to update their credit card while at the pay station, where the easiest decision is to remain a member of your wash club. If that isn’t an option, then make sure customers can self-manage their membership online to avoid making them think about how to update their payments.
MAKE IT PERSONAL
Your ability to make your club members feel like valued individuals, not as revenue, however, is the foundation to keeping churn at bay; so how do you do it at a pay station? Get creative. Whether you welcome customers by name at the pay station or e-mail all red cars a free upgrade voucher on Valentine’s day. Keeping it personal these days is more about maintaining data such as birthdays, e-mail, and cell-phone numbers than it is shaking hands. And despite your best effort, some customers will leave in the blink of an eye no matter what you do. Did you survey them? Do you know if they left because they moved, didn’t see enough value, or chose a competitor and why? Your unlimited car wash club can add tremendous value to your business, just make sure you’ve done everything in your power to monitor churn, and continuously add value to your program, or one day you may blink and discover your unlimited wash club is no longer there.
Good luck and good washing.
Anthony Analetto has over 35 years’ experience in the car wash business and is a partner at SONNY’S The Car Wash Factory. Before coming to SONNY’S, Anthony was the director of operations for a 74-location national car wash chain. Anthony can be reached at (800) 327-8723 x 104 or at AAnaletto@SonnysDirect.com.