Important Membership Marketing Formulas

This past week, I had the privilege of leading a board retreat on growth strategies. We went over the following membership formulas and I promised to post them on this blog for the board members to review. I hope that they are helpful to all of my readers.

Renewal Rate
  • 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
  • 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.

2 comments:

Victoria Downing said...

How do we use the Steady Stage metric? I mean, I understand the formula, but what do I do with the number that is produced? What does equilibrium mean? and what does it mean to me? How does this help me plan for the future?

Tony Rossell said...

Hi Victoria -- Thanks for the question. The Steady State calculation is used to predict where your membership count is headed if you continue with the same level of new member input and retention rates. This might mean you are headed in a good direction OR headed for trouble. Additionally, the formula can help predict future outcomes if you are able to change your new member input or retention rate. So for example, you might be able to go to the board and say if you fund additional recruitment efforts and we can add x number of new members a year that will allow us to achieve this higher level of membership.