As you can see, there are two sides to this equation: Revenue (ARPM * Gross Margin) and retention (Churn Rate). Both are equally important in building a high customer value.
Customer Revenue Analysis
Your average revenue per member is largely dependent on your pricing, but it’s also dependent on your ability to upsell members.
As a franchisee, you may not have full control over your membership pricing, but you do have control over upselling tactics. For example, if your membership fees are fixed according to your franchisor, you obviously can’t raise the price significantly; however, you can bundle other products and services to raise your average revenue per member.
If you’re seeing your average revenue per member go up, it means your team is doing a good job upselling.
Gross margin is also heavily influenced by your franchisor, where materials and cost of services are regulated by specific suppliers. It’s worth looking into how you might leverage group buying with other franchisees if you have the opportunity, this is likely the best way to reduce cost of sales and increase gross margin.
A large part of increasing your customer lifetime value is to focus on each customer’s gross profit margin, but keeping your customers around is equally important. That brings us to your customer retention analysis.
Retention analysis
In your LTV calculation your denominator is churn, which is a measurement of how much money you lost in canceled or downgraded subscriptions. We analyze revenue churn as so:
