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.

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