Do you know…the significant impact the Lifetime Value (LTV) of your members has on your organization?
When I visit clients or prospective clients, ultimately the topic of ‘Member Lifetime Value’ comes up. While some of us who have been ‘around for a while’ understand this, it can still be a fairly new—and confusing—concept to many in the association marketing business.
Therefore, I’d like to reference another ‘Tipster’ that showed very clearly how to calculate LTV. The importance of LTV Lifetime Value for association executives is like compounding for investors. It is what makes the economics of associations work because membership produces an ongoing and predictable stream of dues revenue and product purchases. However, there is often confusion on how to calculate this key economic principle.
Essentially, lifetime value measures the total financial value a member will bring to an association from the time of acquisition to leaving the organization. To calculate it, you need to know your association’s renewal rate and annual dues, and have an estimate of how much a member typically accounts for in non-dues revenue each year.
Here are the formulas and an example. The Formula LTV = Annual Revenue x Average Tenure Since ‘Annual Revenue’ is pretty simple, let’s first look at ‘Average Tenure.’ Average Tenure Using the reciprocal of the renewal rate, we can calculate average tenure of a member in an organization. In this example, we assume the renewal rate is 90%.
- Reciprocal of Renewal Rate: 1 – Renewal Rate or 1 – .9 = .10
- Divide the Reciprocal into 1: 1/.10 = 10
- Average Tenure: 10 Years Annual Revenue Real simple…add all your lines of revenue (annual dues, annual book sales, etc.) together.
- Annual Dues: $100 Book Sales + Conventions + etc.: $ 50 Total $150 LTV.
- Now, multiply the revenue by the tenure. ($100 + $50) x 10 = $1, 500.
Yes, it really is that simple. For immediate assistance in determining the LTV of your association or for any help with association marketing contact a member of our Marketing Solutions Team today!