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Mike Gorun

Mike Gorun Managing Partner/CEO

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Do You Know What Your Churn Rate Is? You Should.

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“When Coca-Cola changed their secret formula in 1983, loyalists were outraged. Coca-Cola received 1,500 calls per day and more than 400,000 angry calls and letters. A psychiatrist Coke hired to listen in on calls told executives that customers sounded as if they were discussing the death of a loved one.” [Fox Business]

 

Wouldn’t it be something to have customers so loyal that they became upset about a change your company made? Perhaps a customer can be too loyal and then it becomes a double-edged sword, as it was for Coca-Cola. If you made a major change, would your customers care?

 

Auto dealerships spend a huge amount of money every month on different forms of advertising. Most advertising focuses on customer acquisition in sales. Why? The basic thought process is as follows: “In order to sell cars next month, we need to bring in new customers.” While that is certainly one strategy, it may or may not be the best one for your dealership.

 

Churn rate is the rate at which a business loses customers to a competitor or different brand, compared to how many customers are acquired and/or shifted from competitors. A high churn rate would typically benefit from a marketing strategy of customer acquisition. While a low churn rate means that your customers are staying with you. No business has a zero churn rate.

 

The auto business, for the most part, is a high churn industry. Most dealers scramble every month to acquire new customers, simply to stay at their current unit levels in sales, with the hope that they will do better. Churn rate is important because, unless you know whether your dealership has a high churn or a low churn, you won’t know the most strategic way to spend your marketing dollars.

 

An article in the American Marketing Association suggests high churn brands can attract new customers relatively inexpensively, but their lifetime value will be low. Whereas, new customer acquisition costs will be high for low churn brands, but the lifetime value of a customer, once attained, will be worth it.

 

This all circles back to deciding what your goals are. Do you want to attract new customers each month to replace the ones that left? Or would you rather foster relationships with your existing customers in an attempt to transform into a low churn business? The only way to grow a business is to reduce customer defection. Failure to accomplish that will mean that your 100-car/month store will most likely always be a 100-car/month store.

 

The article suggests that the ideal scenario is to develop a low churn dynamic for a brand that resides in a high churn category (bring ‘em in and them keep them holding on).
 

This is certainly an ideal scenario but how do you accomplish this?

 

Pay attention to your customers. They’ll tell you what needs improving. Listen to them and take note of what they have to say. Your customers can then feel as if they are an important part of your business; that they have a reason to stay. This then helps to reduces turn rate. The fact is that the auto industry has a high churn rate. If you do not have a handle on who your customers are, if they’re staying, or where they’re going if they leave, it is a hard task to build up your business.

 

Make your customer feel valued during, before and after the sale. Don’t make a sale, high-five each other than go get another up. Be sure to keep in contact and nurture that customer who just bought a car from you. Walk them over to the Service Director to schedule their first appointment. Send them a thank you note and remember their birthday with a quick email or card. Ask if they have any friends, family or associates who may be in the market for a vehicle. That one customer could be worth hundreds of thousands of dollars to your dealership over their lifetime – or you could never see them again. Which outcome would you prefer? Once they’re gone, the only one getting paid will be your competition.

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