Monday, September 17, 2012

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.


1 comment:

Ross Taylor said...

Nice article, the renewal process requires that members supply their annual library material expenditures figure for the most recently completed year, since member cost shares are based on a “rolling” five-year average of library expenditures. Annual library materials expenditures are defined as “aggregate expenditures for acquisitions and binding like books, periodicals, microforms, and all other library materials including electronic media, regardless of source of funding for all the library units included in the CRL membership and eligible for service by CRL.” Business Research