Essential Math for Membership Marketers
Much of the data reported in the recently released 2012 Membership Marketing Benchmarking Report was encouraging. Many organizations are experiencing member growth by using effective tools to recruit, engage, and retain members.
For your free copy of the final report, download it here.
Still, most organizations fail to use membership data
We asked the 667 organizations we surveyed, “What types of analysis do you use to measure the effectiveness of your membership marketing campaigns?” and found that 40 percent use no marketing measurements at all, and fewer than half track response rates of their recruitment programs.This chart illustrates the data and analysis membership organizations say they use. Forty percent use none.
Less than half do any analysis. Five basic formulas tell member organizations how they are doing.
In an age of computers and big investments in websites and databases, many organizations still don’t use basic marketing practices that have existed for years.
As long ago as 1923, Claude C. Hopkins wrote in his book, Scientific Advertising, that “Advertising has reached the status of a science … we learn the principles and prove them by repeated tests. When one method invariably proves best, that method becomes a fixed principle.”
Simple math that tells so much
Five simple but essential mathematical formulas tell membership marketers how long the typical member remains a member; how much each membership is worth over time; how much an organization can afford to spend recruiting a member; and the maximum number of members an association can expect to reach. Here are the formulas:
1. Membership Annual Renewal Rate
The Renewal Rate measures the number of members kept over a period of time—usually a fiscal or calendar year. Here’s the formula:
• Renewal Rate = Total Number of Members Today (minus 12 months of new members) divided by the Total Number of Members in Previous Year.
• Example: When Today’s members = 10,500; a year ago members = 10,000; and new members joined in the same year = 1,500: (10,500 – 1,500) / 10,000 = 90% Renewal Rate.
2. Membership Average Tenure
The Average Tenure measures how long the typical member stays with an association. Here’s the two-step formula:
• First, figure the Lapse Rate, which is the inverse of the Renewal Rate: a 90% Renewal Rate = 10% Lapse Rate, or as a decimal .1.
• Second, figure the Average Tenure, which is 1 divided by the Lapse Rate as a decimal.
• Example: 1 / .1 = 10 years Average Tenure.
3. Lifetime Value (LTV) of a Member
Lifetime Value measures the revenue a member will produce for the organization during her/his tenure. Here’s the formula:
• LTV = Average Tenure multiplied by (Dues + Non-Dues Revenue).
• Example: When Dues = $100 and Non-Dues = $50 per year: 10 years x ($100 + $50) = $1,500 LTV.
4. Maximum Acquisition Cost (MAC)
Maximum Acquisition Cost measures the long-term net incremental value (or margin) produced by a member. That is to say, how much an organization may spend recruiting a member and still make a profit. Here’s the formula:
• MAC = (Annual Dues + Non-Dues Revenue) minus (Annual Incremental Servicing Costs + Cost of Goods Sold) multiplied by Average Tenure.
• Example when Incremental Servicing Costs = $20 and Cost of Goods Sold = $25:
(($100 + $50) – ($20 + $25)) x 10 = $1,050 MAC.
5. Steady State or Equilibrium of a Membership
Steady State projects the long-term equilibrium of a membership based on current new member input and lapse rates. That is to say, it’s the maximum number of members an organization can have given renewal rates and new member input. Here’s the formula:
• Total Membership Steady State = Annual New Member Input divided by Lapse Rate.
• Example: 1,500 / .10 = 15,000.
Why these calculations are important
Organizations that track responses, measure renewal rates, know the lifetime value of members, and measure maximum acquisition cost can make better informed decisions based upon a firm, rational foundation for membership marketing programs.
Want to learn more?
If you would like help developing your membership measurement analytics, please feel free to contact Tony Rossell, MGI’s Senior Vice President, at 703.706.0360, or by email at Tony@MarketingGeneral.com.