How to Calculate Your Membership Renewal Rate

One of the most important numbers to get right in membership marketing is the proper calculation of an association’s renewal rate.  Nevertheless, it is not uncommon as I meet with associations to find their renewal calculation incorrect.  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 March 1, 2017.  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 pay dues after the grace period has ended) are counted as either new or renewing.  With an anniversary date system, I recommend that late payers who are given a new expiration date should be counted as a “new” member and not be included as a continuing member.  With the example above, if 500 reinstated members were removed from the continuing membership number and 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. Essentially, this method means that the terms renewal and retention can be used interchangeably.
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.  Once the aggregate renewal rate is established, then a month by month rate can be calculated using the same method with the exception that the count of renewing members should continue to be updated until the grace period for that expiration month comes to an end.
The goal is to get an accurate renewal calculation where your math and the database report synchronize.  Ultimately, the economics of membership and calculating lifetime value, maximum acquisition cost, and steady state calculations depend on an accurate renewal rate.

Calculating the Cost to Serve a Member

One of the questions that I am frequently asked is how to calculate membership servicing costs.  It is an important question to building and sustaining a success membership marketing program.  But how you answer the question can have profound implications on your membership program.

Here is a real life story on how NOT to calculate the cost to serve a member.  One of my clients presented the following analysis to his staff.  He took the entire budget for his organization and divided it by the number of members and determined that the cost to service a member who annually paid $79 in dues was $300 ($3,000,000/10,000 members).

Shocked and with tongue in cheek, I told him that the best solution for the organization was to email all of the members and tell them not to renew – they would save $221 for each member who did not return.  Of course they would have to survive without the $800,000 in dues revenue and some portion of the non-dues, advertising, and exhibitor revenue dependent on members.

But in all seriousness, when an organization assigns too much cost to serving a member, the calculation can kill a membership program.  Why would an organization spend even the smallest amount of money on recruiting or renewing a member when the cost to serve approached the annual dues rate?

So what is the best way to determine the cost to serve a member?  I believe that the optimal method is to base the analysis on incremental servicing cost.

The incremental cost is simply made up of the variable costs that the association would incur to serve an estimated number of additional members.  These variable costs might be as simple as printing and mailing additional magazines and renewal notices.  You can determine these incremental costs by working with suppliers to get an estimate of what the additional cost would be if, for example, you printed and mailed and additional 1,000 magazines and sent out additional renewal notices to 1,000 more members and then divided these costs by that number of members.  A typical association might find these costs are less than $20 per member and not the $300 per member noted earlier.

Clearly over time for a rapidly growing association the incremental cost method poses some problems.  At some point, additional staff will be required to serve members and office space might need to be expanded.  But I have witnessed clients growing membership by 50 percent and not adding staff or additional space.

The other approach to calculating servicing costs is to try to define the “real” costs to serve a member.  The challenge is that what those real costs are is highly subjective.  Should the servicing costs include some portion of the CEO’s salary?  What about the editorial staff that works on publishing the magazine for members?  Should only the office space occupied by the membership department be assigned to the cost or the space used by others?  Are marketing communications sent to members a cost and if so does the membership revenue budget get credited with the non-dues purchases made by members?  How does the cost of insurance, software, and staff travel get assigned?

All these costs in theory can be assessed and monitored over time.  However, does this really provide a clearer picture or simply reflect someone’s arbitrary judgment call?

The bottom line is that for most associations, serving members is the reason that the organization exists.  And in addition to dues revenue, most product purchases, registrations, exhibit and advertising revenue are driven by the existence of members.  So understanding that there are costs to provide services to members needs to factor into any economic calculation, but following a simple incremental cost calculation will provide the fundamental information needed at a considerable savings of time and debate.

Participate in the 2018 Membership Marketing Benchmarking Research

We have just launched the questionnaire for the 2018 Membership Marketing Benchmarking Survey and I want to invite you to participate in the research.
If you are on our survey list, you would have already received an email with a personal link to connect you to the survey. Please use the link provided in the email to respond. However, if you have not received an email from me requesting you to participate, you can still be a part of the research by using this link.
Last year’s research highlighted some important trends and outcomes that membership organizations have experienced. You can review some of these findings from the Membership Marketing Benchmarking Report in this post.

This year’s survey will give you the chance to benchmark your organization against nearly 1,000 other professional and trade associations.

You can participate using this survey link.

To thank you for your participation in this best practices research project, I will send you a copy of the final printed report. And of course, no specific responses will be reported from any individual or organization without specific written consent. Your participation is much appreciated.

Please take a few minutes to complete this year’s membership benchmarking research. 

How to Communicate a New Membership Model

Many associations are evaluating and launching new membership models or restructuring their current membership.  Some of the new approaches include discussions previously outlined on this site including tiered membership, hybrid membership, and electronic membership.
But once a new membership model has been researched, defined, and approved, the next steps are critically important: the communications plan to introduce the model to members and the larger marketplace.
Here are some recommended steps for effectively introducing a new membership model.
  1. Create Messaging Document – As a first step, in order to have a consistent message shared through staff, promotional materials, and volunteer leaders, a clear and concise messaging document should be drafted that states the official reasons for the membership model change and the cost and benefit implications.
  2. Advise Association Stakeholders – Every association has important volunteers and leaders who carry a high level of influence.  Notifying them of the coming changes and the purpose for the changes before they occur helps with the acceptance of the new model. 
  3. Complete Website and Database Updates – Perhaps one of the most challenging aspects in establishing a new membership model is making sure that it functions seamlessly from the website through the AMS for both the join or renewal process and that the instructions provided on the website are clear.  Make sure everything works before going public with the new membership model.
  4. Develop Dues Notification Letter, Email, and Article – It is unlikely that you can communicate with members too frequently about a change in their membership.  So the best plans are to notify members of the new model and how it will impact them with multiple communication channels.  The letter and email can be personalized to highlight how the changes will impact the member as an individual or company by noting new dues prices, benefits, and operations.  An article published in the association’s newsletter can address the careful process that was followed to make the changes and the larger benefits to the industry and to members. 
  5. Update and Launch Membership Renewal Series – A new membership model will certainly impact the renewal process of an association.  The renewal communications need to highlight the changes and benefits of the new mode. If dues will be substantially higher for an organization then an early notification may be needed so the new dues rates can be budgeted for ahead of time. 
  6. Review Membership Collateral Materials – Membership benefits are communicated in multiple ways by associations from magazine ads, to exhibit booths, to brochures.  Review all of these materials to be sure they accurately represent the new membership model. 
  7. Launch Membership Recruitment Campaign – One of the purposes of a new membership model should be to attract new members who previously did not see value in the membership.  Once the new membership is operationalized, an aggressive membership recruitment effort should be launched to highlight the new opportunities and options now available.
Many associations have found that revising a membership structure that may have been established decades ago can be a lever for substantial growth in membership counts and revenue.  But coming up with the best new way of packaging membership alone without a plan on how to adequately communicate the reasons and the benefits of the changes will result in the transition falling short.  The process of communicating a new model is as important as researching and building the new membership.