‘Know the numbers’ is the best advice that anyone can give you when it comes to membership marketing. Knowing the numbers can help answer key marketing questions like:
‘What is the value of a member?’
‘How much can I afford to spend to obtain a member?’
‘What is my membership retention rate?
The following formulas are provided as a handy reference tool for membership marketers to help them take a strategic look at the economics of membership.
- Renewal Rate measures the number of members kept over a given period of time — usually during a fiscal or calendar year.
- Total Number of Members Today (minus 12 months of new members) / Total Number of Members in Previous Year
- Example: (10,500 – 1,500)/10,000 = 90% Renewal Rate
- Average Tenure measures how long on average a member stays with an association.
- Reciprocal of Renewal Rate: 1 – Renewal Rate or, 1 – .90 = .10
- Example: Divide Reciprocal into 1, or, 1 /.10 = an Average Tenure of 10 years
Lifetime Value (LTV)
- Life Time Value measures the revenue stream that a member will produce.
- Assume $100 / Year Dues and $50 / Year in Non-Dues Revenue
Dues + Non-Dues Revenue) x Average Tenure = LTV
- Example: ($100 + $50) x 10 = $1,500 LTV
Maximum Acquisition Cost (MAC)
- Maximum Acquisition Cost measures the long term net incremental value (or margin) of a member.
- Assume Incremental Servicing Costs = $20 and Cost of Goods Sold = $25
- (Dues + Non-Dues Revenue) – (Incremental Servicing Costs + Costs of Goods Sold) x Avg. Tenure = MAC
- Example: (($100 + $50) – ($20 + $25)) x 10 = $1,050 MAC
Steady State Analysis (or Potential Analysis)
- Steady State projects the long term equilibrium of a membership based on current new member input and lapse rates.
- Annual New Member Input / Reciprocal of Renewal Rate (or Lapse Rate) Shown as a Decimal = Total Membership Steady State.
- Example: 20,000 New Member Input / .25 Lapse Rate = 80,000 Total Membership.