We didn’t act as quickly as we could have in the quarter. I think we spend a little bit of money in places that we probably shouldn’t and we didn’t enough in areas where we could have. So I think what you’ll see in Q3 is further refinement. That being said, 6% reduction in PAC and 23% growth being distribution strategy really kick in, it’s taking hold from a perspective of what we said we would do, we would have more opportunities for growth in areas that we had not had before, so whether that’s new products in the market, that allows us to test new strategies and operates at a slightly lower level from a PAC spend. So we’re not all putting everything into our core business. It can be through other products, other geographies to bring that PAC, sorry to bring the IRR within its guardrails.
So we have flexibility. We are fortunately able to leverage our distribution strategy, which is really doing exactly what we intended it to do. And we feel good about the direction that’s moving through the year, especially as we see margin expansion, and it gives us a lot more appetite for growth as we can see an end to the margin compression that we’ve had so far this year.
Darryl Rawlings: Yes, I’ll just add one last thing, this is about the smart disciplined growth and being free cash flow positive in Q4. Those are our goals. That’s what we’re executing towards.
Katie Sakys: Got it. Thank you.
Operator: The next question comes from John Barnidge from Piper Sandler. Please go ahead.
John Barnidge: Thank you very much and good afternoon. My question and congrats on the approvals on the rate filings. Is with ARPU becoming a changing dynamic how should we think about the significant 20% pricing and individual receiving it and then toggle and with the deductible to keep their subscription payment unchanged. Is that an increase in frequency at all.
Margi Tooth: No, it’s not actually, It’s been consistent. It’s something that we watch and we expected to see that come up. Since we’ve been putting these rates through, we haven’t seen that change. It’s been consistent for the last 10 or so years. What is changing though is as we’ve mentioned over the last few quarters, we are seeing a different mix of businesses we – where we’re acquiring pets. And when we talk about mix, we’re talking about geography, we’re talking about age of pets, we’re talking about breed, even species. So that’s driving some of the shift in terms of the ARPU that we ultimately end up netting. But in terms of the rate increases and how we should think about the impact on the members, often what’s happening is there is a – there may be a phone call into the team, but the team we speak to all our members, if they are looking to cancel, they’re able to really explain the value proposition that experience hasn’t changed either.
So, we’re seeing strong retention. We’re seeing no increase in the number of people at all or what we call by down that deductible around. And ultimately where we’re trying to get you now is making sure that we have proactively reaching out to members to help them understand what’s happening with vet industry, so that they can understand why these prices moving. And I think over ARPU like I mentioned is really largely coming through that mix of business. So as Darryl mentioned earlier in the call, we have such a difference across North America with ARPU, you’ve got two areas in North America that have ARPU in excess of $74 that equated to 40% up on new business. And then you’ve got 50% of our new business coming from areas where we have a $55 ARPU.
So when you look at those two together, you really do have a blend. So it doesn’t – that blended ARPU doesn’t tell the full story, which is really why we won’t see go to next page, next quarter to be able to break that down and give us far more granular approach to how we’re thinking about growth and how ARPU is one component of that internal rates of return. So I think in terms of the pricing, the good thing is we have got our margin expansion, which is what we were looking for and we’ll continue to see that come through assuming that cost of goods which will then show up in those numbers from the ARPU growth, we’re expecting by year-end. Does that answer your question, John?
John Barnidge: Yes, it does. Thank you very much. And then can you talk maybe about considering semi-annual renewals at your Investor Day that’s still under consideration.
Margi Tooth: Absolutely. I think we’re always open to adjusting to make sure we can give our members the best experience. And that was – that’s what – that’s in regard to. So ensuring that there is a way for our members to accurately budget for the cost of care. Now that budgeting, often for the 97% of the population that’s uninsured comes through really leaning into the credit card savings, friends, whatever they can do to afford the cost of care. Those 3% that are insured and those are insured Trupanion, up until recently have been able to budget, because they’ve had a monthly payment that’s pretty consistent year-over-year. This year is a little different. It’s different for every insurance provider. It’s different for the industry, where we are seeing bigger increases and we feel it’s more appropriate and fair to be able to slowly move into those increases rather than giving people a 20% plus increase.
