Part One: What Is Plan Churn and Why Does it Matter?

Enrolling pets in your wellness program is the first step toward success. The second step is ensuring that pet owners renew these plans on an annual basis, so that their pets continue to get the care they deserve and the practice sees continued Growth.

The term “churn” refers to the number of plans that do not renew over a given period, and is expressed as a percentage of total renewals possible. For example, if there are 200 plans available for renewal in the month of August, and 175 of those 200 actually renew, then your churn would be 12%. In recurring billing businesses (e.g. cable carriers, software-as-a-service companies, dental membership programs, veterinary practices with wellness plans, etc.), the churn rate should be as low as possible in order to keep a stable revenue stream and reduce acquisition costs of new customers. And while you might not consider your wellness program as a recurring billing business, it is.

Besides the monetary benefits of low churn (increased recurring revenue and stable ancillary spending), the loyalty and compliance driven by your program makes for healthier pets, happier pet parents, and fulfilled practices. Higher retention rates give veterinary professionals more opportunity to build stronger relationships with clients and become their trusted resource when it comes to all things pet-related. Again, as discussed in previous blogs, think about all of the associated benefits that come with a membership program.

Churn by the Numbers
Consider the effect on recurring revenue of a churn rate of 50%. Here’s an example: Wiggles Animal Hospital sells 100 plans in year one (research shows that 100 plans provide an average of $150,000 in annual revenue to a practice when including ancillary sales). In year two, they add 100 plans, but with 50% churn, at the end of year two, the result is 150 plans, or $250,000 in plan-associated revenue. Not bad, but not what it could Be. However, in year three, Wiggles Animal Hospital still has 50% churn, but adds another 100 new plans. At the end of year three, this results in only 175 active plans or $262,500 in revenue. That is how churn sneaks up on a business.

Now let’s say Wiggles Animal Hospital only had a churn rate of 20% (a reasonable goal). At the end of year three, they would have 244 active plans worth approximately $366,000 in revenue. That is a huge difference (+$100,000), and why it is so important to focus on keeping the churn rate as low as possible.

High Churn = Poor Renewal Rate
Many factors can affect the overall renewal rate of your plans, but perception of value, or lack thereof, is the number one reason that pet owners do not renew. Yes, price does play a role, but with only 7% of pet owners citing the discount as their top reason for purchasing a plan, it goes much further than this. And while we go into more detail in our next blog on strategies for low churn, the most important thing to realize is that a renewal strategy focused on increasing perception of value starts on the day you start offering plans.

For starters:

• Are clients educated that these are plans to keep the pet healthy throughout their lives? For example, high churn often occurs when a pet goes from a puppy/kitten plan to an adult plan, because lifetime value of care is not emphasized. Cost of care and convenience make it easy to sell puppy/kitten plans, but if you don’t focus on the bigger picture, these pet owners will not perceive the value of keeping their pet on a plan.
• Did you provide the services included in the plan? It is the practice’s responsibility to ensure that all of the key services included in a plan are delivered within one year. A large part of a renewal strategy is to stay on top of this and make sure that clients have every opportunity to redeem these services (think dentistry, diagnostics, spay/neuter). How can you expect someone to renew a plan when they never even used the services from the previous year?
• Did doctors as part of the preventive care examinations/visits take the time to review each service that is being delivered, explaining why that service is important, either as a preventive measure or diagnostic tool?
• Do doctors and team members consistently commend plan holders for being extraordinary pet owners?
• Are clients that enroll their pets in your wellness program made to feel like they are part of a special group and rewarded for choosing to provide the highest quality care?

Ultimately, churn will determine just how big a wellness program can become and how significant it can be for the practice. If your customers churn too fast, you end up taking four steps forward and three steps backwards. So, from day one, understanding the factors that affect renewal rates, and then planning and implementing a low-churn strategy will determine the long-term growth and sustainability of your Program.

Next week we will look at implementing specific strategies to optimize plan renewals and maintain low churn.