A Tool to Calculate Your Potential Membership

What did you select as the best membership marketing strategy from the case study posted earlier this week?

The correct answer based on the data provided to you is the first option.

Let me explain why.

In order to create the optimum strategy, associations need to define where the opportunity for growth lies — through enhanced acquisition efforts, renewal efforts, or a combination of both.A technique called 'Potential Analysis” (also called Steady State Analysis) can be an effective tool to evaluate what long-term strategy is best for your organization.

To do a Potential Analysis, you use a simple calculation based on the potential new member input and the organizations potential lapse rate (non-renewal rate). Using these numbers, the formula calculates the level where your total membership will reach equilibrium.

Here’s the formula. Annual New Member Input / Reciprocal of Renewal Rate (or Lapse Rate) Shown as a Decimal = Total Membership Steady State.

For example, 20,000 New Member Input / .25 Lapse Rate = 80,000 Total Membership.

Using the Potential Analysis formula, the results for the case study proposed in the previous post came out as follows:

  • The first option with a 75% renewal rate and 8,000 new members per year will achieve a total membership of 32,000 members over time.

  • The second option with an 85% renewal rate and 2,000 new members per year will achieve a total membership of 13,333 members over time.

  • The third option with an 80% renewal rate with 5,000 new members per year will achieve a total membership of 25,000 members over time.

How did your intuitive response compare with the Potential Analysis?

Clearly, based on this exercise, the aggressive membership acquisition strategy had the best potential outcome for this group, followed by the balanced strategy.

However, this case study in no way is means that an aggressive acquisition strategy is always the solution!

In fact, a renewal strategy can be the best option for some groups based on which estimates are put into the analysis. This is particularly the case for associations with low potential new member input opportunities. In the above situation, if the potential renewal rate were 94%, then option two would have been the best selection for this group. Long-term membership with a 94% renewal rate and 2,000 new members a year would have yielded 33,333 members.

Give this tool a try with your membership.

My next post will take a look at the financial implications of selecting the best membership marketing strategy.


Lindy Dreyer said...

I love the simplicity of it. I'm assuming you've used this with clients. Any surprises?

Tony Rossell said...

Thanks Lindy. The formula works great. The only thing that you need to keep in mind is that if you have a unusual year. For example, if your renewal rate is particularly low because of an AMS snafu, then your steady state would be artifically low.

Lindy Dreyer said...

That makes sense. Thanks! (BTW, I meant to say "a wide variety of clients" in my original comment. I hate re-reading stuff I've written in a hurry;-)