Confusion in Calculating Membership Renewal Rates

Probably the most frequent question I get asked from clients and inquirers is how to calculate renewal rates.  I think the confusion stems from getting lost in the trees instead of starting out looking at the forest.

Let me explain.  In very simple terms, an organization’s renewal rate calculates how many members remained with the organization from twelve months earlier.  To get these numbers, you first need to know how many members you had at the beginning of the period.  Next you need to know how many members you have now.  Then to determine how many continued  their membership over the past year, you subtract the total number of new members from your current membership (new members were not eligible to renew).  This gives you the count for how many members your organization retained.

Here is an example.  Let’s say you had 10,000 members on May 1, 2012.  And twelve months later you also have 10,000 members.  But of the current 10,000 members, 2,500 were added as new members over the course of the year.  That means your net continuing members were 7,500.  And if 7,500 of your original 10,000 members continued with you, you have a 75% renewal rate.

So that is looking at the big picture – the forest.  But what happens if your computer report gives you a different number?  This discrepancy typically comes because of the business rules that were used to set up the database report.

Here are a couple of common problems.  One is how reinstated members (those who renew late) are counted.  If they are included in your new member count, they will lower your renewal calculation.  With the example above, if 500 reinstated members were now counted as new members, the new member count would be 3,000, pushing your renewal rate down to 70%.  The other common problem is where Life Members or multi-year members are counted.  They continued their membership, so in the example above, they would be counted as renewing members even though there was not a separate financial transaction.

My personal opinion is that reinstated members who pay after the grace period ends should be counted as new and Life and multi-year members should be counted as continuing or retained members.  But wherever you choose to count them, you need to build this into your calculation.

The bottom line is when you are attempting to calculate your renewal rate, start out with the big picture.  Do the simple math first then if reports come out of your database that do not corroborate the simple math, look into what business rules have been factored into your report.

The goal is to get an accurate renewal calculation where your math and the database report sync.  Ultimately, the economics of members and calculating lifetime value, maximum acquisition cost, and steady state calculations depend on an accurate renewal rate.

Quick Findings on Membership Dues Increases

Once again in our 2013 Membership Marketing Benchmarking Research, we investigated the practices around increasing membership dues rates. 

Of the 680 association respondents that answered these dues related questions, 23.5% reported that they have or plan to increase their dues rates this year.  The industry segments most likely to be raising dues include organizations that identified themselves as Chambers of Commerce.  The industry segment least likely to be raising membership dues are Arts, Cultural, and Museum based associations.

A total of 31% of trade associations report that they are raising dues in 2013 compared to 21% of individual membership organizations.  Also associations with budgets of over $5 million dollars are more likely to be putting a dues increase in place.  And organizations that report annual renewal rates above 80% or better were more likely to be raising dues compared to those with lower renewal rates (26.7% compared to 18.5%).

How much are organizations raising dues levels?  51% of respondents said that their last dues increase was between 1 and 5% and 24.7% had increases of between 6 and 10%.  The vast majority of associations (62.6%) report that they do not raise dues on a regular basis, but only on an “as needed basis”.

From our research the lesson has been pretty consistent over time that most associations can easily implement modest dues rate increases without adversely impacting their membership.

The final benchmarking report will be released in several months and participating associations will receive a printed edition of the complete report.

Direct Mail Remains a Productive Channel for Membership Marketing

As we deploy new and exciting marketing channels, it is often good to step back to be sure that we are covering the basics.  That’s why I found an article by Kevin Mills, the Director of Membership for the National Legal Defense Association, a good reminder. 

In the April issue of Marketing Advents, Mills wrote an article titled, Direct Mail: The Foundation for Marketing Success.  “With more than 15 years of experience developing marketing strategies to increase membership and member benefits,” Mills says, “I have the most confidence in direct mail … Direct mail provides legitimacy to our organization and its cause, and provides the vehicle for email and social media campaigns to be successful. Again, using other marketing tools is obviously a necessity in today’s technology-driven culture.  But, in laying the foundation for marketing success, the results are best when we put together a comprehensive marketing strategy that begins with direct mail.”

He adds “that even our younger customers are responding to our direct mail efforts.”

Mills conclusions were confirmed in the 2013 Membership Marketing Benchmarking research.  Organizations that used direct mail in renewal efforts were more likely to have renewal rates of over 80%, have increased membership in the past year, and have increased or maintained their renewal rates.  Additionally associations with 20,000 or more members affirmed that direct mail was the most effective marketing channel for membership recruitment.

What’s the bottom line?  In my experience, direct mail remains an effective and scalable channel to help organizations get and keep members.  Used properly, it is highly targetable, track able, and affordable.  If it is not in your marketing portfolio of tools, it probably should be given a try. 

Characteristics of Rapidly Growing Membership Associations

The 2013 Membership Marketing Benchmarking data shows that 24% of responding associations reported rapid growth in membership over the past year.  My definition of rapid growth is growing at a rate of 6% or better.   

So today, I took a look at some of the characteristics of these growing associations.  Here is what I found.

·       Associations that describe themselves as offering both individual membership and organizational membership are more likely to have rapid membership growth compared to individual or trade groups (28% to 23% to 21%).

·       Associations with 20,000 members or more are more likely to have rapid growth (35%).

·       Associations representing healthcare, hobbyists, financial services, and professional services markets are more likely to have rapid growth.

·       Associations with an increase in new members over the past year are more likely to have rapid membership growth (33%).

·       Associations with an overall renewal rate of less than 80% are more likely to have rapid membership growth compared to organizations with an 80% or greater renewal rate (27% to 22%).

·       Associations with an increase in renewal rates over the past year are more likely to have rapid growth in membership (39%).

·       Associations with first year new member renewal rates of between 60% and 79% are more likely to have rapid membership growth (28%). 

This topic probably warrants going deeper into the data to look at specific tactics that correlate with rapid membership growth.  But for now, here is one finding that the data may support.  It may be more important to add new members into the membership funnel than to renew them. 

Groups with somewhat lower overall renewal rates and lower first year renewal rates still had rapid growth.  This may be because a larger portion of their membership is made up of new members who characteristically renew at lower levels than do long term members.

Please feel free to share your theories in the comments section below. 

 

Good Friday Prayer

Last week, I came across this old prayer and I thought it would be appropriate to share for Good Friday.  It is titled, The Valley of Vision.

Lord, high and holy, meek and lowly,

Thou has brought me to the valley of vision,

where I live in the depths but see Thee in the heights;

   hemmed in by mountains of sin I behold

   Thy glory.

Let me learn by paradox

   that the way down is the way up,

   that to be low is to be high,

   that the broken heart is the healed heart,

   that the contrite spirit is the rejoicing spirit,

   that the repenting soul is the victorious soul,

   that to have nothing is to possess all,

   that to bear the cross is to wear the crown,

   that to give is to receive,

   that the valley is the place of vision.

 

Lord, in the daytime stars can be seen from deepest wells,

   and the deeper the wells the brighter

   Thy stars shine;

Let me find Thy light in my darkness,

   Thy life in my death,

   Thy joy in my sorrow,

   Thy grace in my sin,

   Thy riches in my poverty

   Thy glory in my valley.

 

Association Membership Growth by Industry Served

The economy impacts industries differently. These impacts also translate into the associations that serve each sector.

In our 2013 benchmarking research, we asked respondents to tell us the industry that their association serves. Then we cross tabulated the industry from the largest responding sectors with the percentage of the associations reporting increases in membership over the past year.

The chart below shows the industry served and the percentage of associations in that sector reporting an increase in membership.

Percentage of Associations Reporting Membership Growth by Industry

Not surprisingly, associations serving the healthcare industry had the highest likelihood to have seen membership growth over the past year. Healthcare groups, along with Science and Engineering societies, also topped the list of associations experiencing membership growth over the past five years.

Associations in Education, Professional Services (blue collar), and the Building and Construction industries were much less likely to have seen an increase in membership.

The final benchmarking report will be released in several months and participating associations will receive a printed edition of the complete report.

Early Benchmarking Results Confirm Continued Growth in Association Membership Counts

As we begin to analyze the survey returns for the 2013 Membership Marketing Benchmarking Report, results show that there continues to be growth in the membership counts for participating associations.

Over 690 associations participated in the research and of those 361 (52 percent) reported that they have an increase in their membership over the past year. This is the second year in a row that the majority of participants reported membership growth and continues the positive trend from the low point of only 36 percent of associations reporting membership growth in 2010.

Interestingly, organizations with larger memberships reported higher growth for the past year. In fact, 60 percent of associations with memberships greater than 20,000 said that they saw growth this past year. While only 50 percent of associations with less than 1,000 members saw growth.

The final report will be released in several months and participating associations will receive a printed edition of the complete report.

Using Online Lead Generation to Drive Membership Recruitment

Whether you recruit new members using direct mail, email, or telemarketing, your efforts are empowered by identifying the very best prospects for membership and then promoting to them.

But where do you find the names and contact information for top prospects that have an immediate need for the information and content that your organization specializes in producing?

For an increasing number of membership organizations one source is using your website, search engine marketing (SEM), targeted social media ads, ad networks, and other online tools to offer free information that invites prospects to raise their hand and request your content in exchange for their name, address, email and an opt-in for you to continue interacting with them.

When a prospect searches for your information, finds material provided by you, and requests follow up, they identify themselves as excellent candidates to join.

Here are some examples of effective free information offers that encourage the exchange of contact information for content:

1. A free whitepaper with a compelling title and useful information
2. A free webinar offering continuing education
3. A registration for a private social network
4. A free organizational or industry e-newsletter

Respondents to the ad are directed to a microsite that is designed to reinforce the value of the free content and collect the prospects information. Once the form is submitted, a follow up email fulfills the offer and the membership cultivation process can proceed.


Sample Lead Capture Microsite

One of the additional advantages of online lead generation is how measurable it can be. From the initial click to the final join each step the prospect takes can be tracked through the process. Effectively the fingerprints of the prospect are left each step along the way from the ad that was initially clicked, to the follow up emails, to the submission of a member application.
How active is your organization in trading content for contact? Please feel free to comment on your experiences.

Using Member-Get-A-Member Programs to Generate More Loyal and Valuable Members

As long as there have been membership organizations, there probably have been member-get-a-member (MGM) programs. It makes a lot of sense. Your members are likely to be in contact with others who share the same interests and needs as they do. 

Plus, as noted in an article in the Harvard Business Review, “Why Customer Referrals Can Drive Stunning Profits” a study of “10,000 accounts in a large German bank over a period of three years found that customers obtained through referrals are both more loyal and more valuable than other customers.”

Our 2012 Membership Marketing Benchmarking Report highlights that once again “word of mouth” referrals is report as the most effective membership recruitment channel for associations.

So how can membership organizations harness the power of referrals? From my exploration of MGM programs, I have not seen a single “right” way to run these programs. A common theme of effectiveness for MGM programs, however, seems to be making the program simple and being consistent in the request and expectation of asking members for referrals.

Also most MGM programs include some type of incentive to encourage members to participate. These come in the form of gifts or financial incentives, some type of contest, or recognition before your peers in the association. You should note that there a many legal requirements that need to be fulfilled if you use any type of sweepstakes offer or drawing. I do not attempt to cover those issues here.

Here are three examples of member-get-a-member programs that I am familiar with. The first is a “free trial” membership approach. Current members are sent tickets – like those pictured here -- that offer a six month, no-obligation membership in the organization. The strength of this program is that members do not need to sell anything. They are simply asked to give away a sample of something that they value and use themselves. Additionally, both the member and the trial member are entered into a drawing for participating in the program.

A second example is from an organization that I have been a member of for years – the IEEE. Each year, they send me a set of cards in my renewal notice and ask me to distribute them. The member writes their name and membership number on the card, so when the invitee signs up for membership online, the member information is can be entered and captured. Specific financial rewards are provided by IEEE for recruiting members. Here is a link to the MGM web site for IEEE that gives full details on how this program works.

Another example is the MGM program of a trade association. Their referral program focuses the giving the member the privileged of conferring a new member dues discount to the company that they refer. If you or someone from your member company recommends a firm for membership, then you have the opportunity to also give them a 20 percent discount for their first year dues payment.

Finally, here is another MGM site that I like where the association simply requests members to provide them with the name and address of prospective members and then the association does the follow up work.  This is a program that I used years ago as a mailed nomination process, but it became cost prohibitive.  But using a website to at least collected prospect names even though it requires a mail follow-up makes sense. 

Along with the advantages of MGM programs, I think one of the biggest mistakes made is the assumption that a member-get-a-member will be a silver bullet to solve membership recruitment challenges. How often have I heard the statement, “if every members recruits another member, we will double in size.”

MGM programs can be a part of the recruitment solution. However, no matter how hard you try or what you promise, only a small, highly motivated percentage of members will be comfortable with or interested in serving as an evangelist for you. So use MGM programs as part of your recruitment portfolio, but do not view it as a comprehensive solution.

Diagnosing and Solving Your Membership Marketing Challenges

For those who might be interested, I have posted the slides from my recent webinar titled "Diagnosing and Solving Your Membership Marketing Challenges" on Slideshare.  Feel free to download the presentation.  I hope that you find it of help. 

Diagnosing and Solving Your Membership Marketing Challenges from Tony Rossell

Last Chance to Participate in the 2013 Membership Marketing Benchmarking Research

The opportunity to participate in the 2013 Membership Marketing Benchmarking Report is coming to a close. So if you are a membership professional, I wanted to provide this last chance to take part in this year’s research.

If you received an email invitation to participate, please use the link provided in the email to access the survey.  If not, you can use this link to fill out the survey.

Last year over 700 membership organizations took part in this research. Our hope is to increase the quantity of participants this year in order to provide analysis with even finer segmentation than in the past.

Of course I will report many of the findings from our research here on the blog. But for those who complete the survey, we will send a free printed copy of the final, full report.

I look forward to sharing with you the outcomes from this year’s research. Thanks in advance or being a part of the 2013 Membership Marketing Benchmarking Report.

Please take a moment to complete the survey now while you are thinking about it.

Results from Membership Renewal Series Tests

In 2012, we were doing a good deal of head to head testing within clients’ renewal series. The great thing about testing is that something typically wins by either generating more response or cutting costs. This proved to be true in our tests.
Here are some of the results from these recent tests. They are reported as the proportionate change between the test and the control.

• An offer to break up a single annual dues renewal into three installment payments outperformed the control notice by 11 percent.

• A fully redesign renewal notice that significantly economize on printing costs produced the same return as the control notice, but saved 20 percent in costs.

• A renewal postcard tested against the control envelope renewal reduced response by 30 percent.

• An early renewal discount offer outperformed the full price renewal offer by 92 percent.

Each organization’s situation is unique. So use these test results as indicators of things you may want to try. Your results may vary.

A Tool to Build Your Marketing Plan

In my mind, the key coordinates of creating an effective marketing plan are connecting each market segment with the proper marketing channels, value proposition, offers, messages, and frequency.

So I have created a template (below) to use for planning and brainstorming sessions to help make these connections.

To use the template, start by inserting your market segments in the left hand triangle – from most productive to least productive. Along with the name for the market segment, you can also list the estimated quantity of prospects in that group. Then work through the matrix to the right.

For example, if you are creating a plan for membership recruitment, your best market segment might be lapsed members. Because they are so responsive, you can use fairly expensive channels to reach them, so you might put staff sales calls, telemarketing, direct mail, and email as the channels. The value proposition, offer, message, and frequency of contact for this segment will also be different than reaching out to another segment with less awareness or affinity for your organization.

Once you have completed filling in each quadrant of the matrix, you basically have your marketing plan done. I have provided for up to six market segments, but you obviously may have more or less than this to target in your plan.

If you would like to make adjustment to this template or be able to type content into the blanks, I can provide an Excel spreadsheet of this document. Please let me know if you would like one sent to you.

Eight Membership Retention Strategies and Ideas

The simple answer to improve membership retention is to provide more value and engage members. That said there are also very practical marketing tips that can help you keep more members. Here are some to keep in mind:

1. Frequency – Like it or not, people forget to renew. Don’t give up too soon on retaining a member.

2. Channels – Use all of the tools that are available to you for retention – mailed notices, postcards, email, staff or volunteer calls, telemarketing, and website interstitials.

3. Conversion – Almost always, first year members are the least likely to renew. That’s why the first year of membership is called the conversion year. Focus time, effort, and budget on these first year members.

4. Budget – As long as you are not spending more to renew members than to acquire a new member, you are budgeting fine.

5. Payment – Offering payment options, especially some form of automatic credit card or EFT renewal, turns renewals from an opt-in decision to an opt-out action.

6. Offers – This is highly debated, but some organizations have great success with giving incentives for early renewals. It may be worth a try using a postcard and a website only promotion code to track effectiveness.

7. Personalization – Adding personalized messages to renewal notices can be effective. For example, “because of your membership, you saved $50.00 on your product purchases this year.” Or, “we had some success on the legislative issue you were most concerned about.”

8. Analytics – Figure out what segments of your membership are most likely to renew and which are least likely and allocate your resources. Your best members may only need a few contacts and more effort may be needed for your lower responding segments.

I hope this gives you some food for thought. Feel free to add your successful strategies, tips, and ideas below.

Mark your Calendars for an Upcoming Membership Marketing Webinar Series

I wanted to invite you to take part in a free webinar series. The series will include sessions from highly regarded and talented membership professionals. The focus of the webinars will be around recruiting, engaging, and keeping members.

As part of the series, I will be presenting a session titled, “Diagnosing and Solving Your Membership Marketing Challenges”.

My webinar is scheduled for Wednesday, January 9, 2013 at 2PM Eastern.

The webinar series is sponsored by the following groups, Young Association Professionals, Aggregage, Association Universe and Infinite Conferencing.

Here is the site to learn more about this series and to register.

Are You Keeping Up with the Digital Marketing Revolution?

More and more of the marketing dollars for my clients are moving to digital channels to build awareness, generate leads, and recruit members and customers. The majority of the money is flowing to various Google ad options, Facebook, and LinkedIn with a good amount also going to specialized ad networks.

But it is not just membership organizations that are moving in this direction. Business Insider shared the following graph on the rapid growth of digital advertising in a presentation on The State of the Internet.

Clearly traditional channels like email, direct mail, and telemarketing are still great tools and in some cases more cost effective than online marketing. But when you want to market to populations that are hard to find on traditional lists, online marketing is hard to beat.

How is your organization experimenting with digital advertising channels?

Two New Membership Models that are Thriving and One Membership Model that is Struggling

As they look to the future, many membership groups are looking for ways to either increase revenue of cut costs. To achieve this, they are introducing new membership models. Here is what I am seeing with some recent programs that our clients have developed.

1. Premium Membership – There are always highly committed members that want the top individual membership available. So one group I work with added some low cost, but helpful, new benefits to their regular membership and created a plus or premium option. They priced the higher level membership at $97 compared to the regular membership price of $49. With very little promotion members have moved to this new category primarily as they see the option when they renew online. It has increased revenue at almost no additional cost.

2. Institutional Membership – Traditionally membership associations are either an individual membership organization (IMO) or a trade association with company or organizational memberships. However, many IMO’s are creating a hybrid model where they continue to offer an individual membership, but also make available an institutional membership that includes benefits for multiple individuals in the organization. The results are very positive, more revenue and higher retention rates. Essentially these associations have grown their share of wallet beyond the one or two memberships that they normally would have from a single organization to a much higher dues figure.

3. Online Membership – As a cost cutting measure some associations have offered a lower price, paperless membership. All of the services are delivered electronically. Initial signups for this type of membership are good because of the lower dues amount. However, renewal rates for this membership category have been disappointing for many organizations. I have seen renewal rates as low as 15 percent. The challenge with the electronic membership model may be that online members do not receive the “push” of tangible mailed services with their membership. They have to be very proactive to extract value from the membership. And many do not have the time or take the initiative to benefit from services that are not pushed directly to them.

Exploring new membership models is part of the formula to keep a membership strong and thriving. However, not every new membership model works. What new membership models have you tried in your organization?

How to Budget for Membership Recruitment and Renewals

Most membership marketing budgets are built backwards. An organization determines how much it can spend and then asks the membership staff to use it in the best way possible.

But the correct question should not be how much you are allowed to spend, but how much you can generate in revenue for the organization. In other words, base budgets on the harvest, not on the cost of the seeds.

Here is an example.

One group that I work with on renewals has an average dues rate of $95. They run a nine part mail renewal program with supporting emails. The incremental cost to service a member is approximately $24 per member.

Here is how much they spend to renew each member from each renewal effort (cost of the renewal effort divided by the number of members renewing with that effort):

• Effort #1 -- $ 2.31

• Effort #2 -- $ 4.05

• Effort #3 -- $ 8.75

• Effort #4 -- $10.24

• Effort #5 -- $15.96

• Effort #6 -- $10.15

• Effort #7 -- $ 9.36

• Effort #8 -- $ 20.54

• Effort #9 -- $ 37.61

So by the last effort, they are spending over $37 to get a member to renew. Is that too much? I would argue that it is probably makes good economic sense for this organization to push even harder for renewals because they are still making a profit for the organization on effort #9 of $33.84 per member (($37.61 + $24.00) – ($95) = $33.84).

The good news is that this group is basing a renew budget on return on investment that they monitor for each effort instead of on an arbitrary cost budget.

The same evaluation can be done for membership recruitment. As I noted in my August 16th post, a new member will produce a predictable income stream for an organization. This income stream is called lifetime value.

If you know the lifetime value of a member and the cost to service the member each year, you can establish the “margin” that a new member will produce for the organization over time. Knowing the lifetime margin a new member will produce then allows you to build a budget based on ROI instead of on what funds are allocated or might be available for membership recruitment.

So with the organization highlighted above, if the average member stays for 5 years, the dues revenue stream is $475 and the five year servicing cost is $120, producing a lifetime margin of $355.

Knowing these numbers allows the recruitment budgeting discussion to be driven by how much the organization wants to invest to produce $355 income stream from each new member.

The bottom line is that you should not budget backwards for membership marketing. Budget based on the return on investment that each membership marketing dollar will produce for your organization.

Whitepaper with Tips on Membership Association Marketing Released

We have issued a new whitepaper, “100 Super Hints Revealed” focused on tips to help membership associations market more effectively. It is a free download and provides good reminders for experience pros and new marketing professionals as well.

Here is a selection of some of the tips that I like.

3. What’s your “USP” (Unique Selling Proposition)? If you had 15 seconds to convince someone, what would you say? What sets you apart from others?

10. Use what works don’t reinvent the wheel. If it works, use it. If it doesn’t, try something else. Incorporate a “test” into every effort you do.

15. Write the Order Form first since marketing is “only” about sales; your order form is the most important piece in your package.

55. Use a List Broker. They usually work FOR FREE and can help you with research, trade customs, and problems.

73. If your sale has to be approved by others try mailing the influencers as well (e.g., the prospect, their boss, their accountant, etc.).

81. Test, Test, Test. As soon as you find something that works, beat it.

84. Incentives work. Use discounts, premiums, and coupons. Everyone likes to think they’re getting a deal.

Here is the link for the free download. Feel free to add your tips in the comments section below.

Presentation Slides for the Membership Marketing Benchmarking Report Now Available

Over the last couple of months, I have been asked a number of times for content from our Membership Marketing Benchmarking Report to use for staff or board presentations. In order to make the material easier to access, I have loaded my standard PowerPoint presentation onto Slideshare.

You are welcome to use the information; I simply ask that you attribute it back us when you share the findings. I hope that you find it of help.

2012 Membership Marketing Benchmarking Report from Tony Rossell