The Numbers Guy Looks at Costs and Benefits of Using a Grace Period on Monthly Passes

SiteWatch® Automatic Recharge Module®

What are the financial benefits and costs of using a grace period?

You may recall a study from several years ago (read about it here) that took a look at the benefit of retrying a monthly pass customer’s credit several times. Instead of attempting to charge a customer’s credit card once and then kicking them out of the monthly pass program if it is declined, we found that you can keep more customers in the monthly pass plan by retrying their card several days in a row and allowing them to wash during that grace period.

Some users of the grace period have asked, “Is it worth giving away free washes to customers who will eventually be kicked out of the program?” To answer that question, one user graciously allowed DRB Systems to analyze their data and anonymously share the results.

This particular user retries a monthly pass credit card for 14 days. Like other studies we’ve seen, the biggest benefit (revenue gain) is achieved in the 1st three retries. But, at the tail end, is the operator giving away more washes than it is worth?

ARM Graph

While we cannot share specific revenue totals, we can share one key number: The revenue per wash gained from this group of customers on day 14 was $5.84. This was calculated by dividing the successful recharges by the number of washes given to all customers whose recharges were attempted (both successful and unsuccessful).

For this operator, that $5.84 is still a profitable number. In fact, it is very close to the per-wash revenue that they get from all their monthly pass customers. Therefore, for this particular merchant, it is definitely worth retrying monthly pass credit cards for 14 days.

As you might realize, this SiteWatch feature is a gift that keeps on giving. By keeping those additional customers in the monthly pass program, they are on the program for the next month, the month after that, and so on without any gaps in membership. While most customers that are declined and kicked out will eventually rejoin the program (read about that study here), avoiding those gaps in membership means more revenue for you.

This study and others continue to illustrate the point that retrying a monthly pass customer’s credit card and offering a grace period is financially beneficial. When asked, my standard grace period recommendation is 7-10 days, with a grace period as long as 14 days if the operator is comfortable with it. If long grace periods make the operator nervous, then I’ll recommend a minimum of 3 days.

With SiteWatch, you can specify the grace period that you are comfortable with. Because the Automatic Recharge Module (ARM®) makes monthly passes easy to sell and easy to manage, it does not require extra work on your part to retry a customer’s credit card. SiteWatch automatically terminates a customer’s plan if their credit card is declined at the end of the grace period.

The bottom line to you as the operator is…the ARM grace period feature helps put more money in your bank account each and every month.

Harold Guthrie, denizen of the digital world, is the DRB Systems numbers guy. A graduate of the University of Akron with a degree in mathematics, Harold toiled for IBM before he came to our company in 1994.

A consummate numbers guy, he has conducted numerous engineering studies on a wide variety of SiteWatch products. When it comes to figuring out the meaning of figures, Harold is clearly our number one choice. He can be reached at 800-336-6338.

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