There is actually a formula to calculate how long members on average continue their membership. It is called calculating the Average Tenure of a member.
Here is how you can calculate this for your membership. Take the lapse rate of the membership (the opposite of the renewal rate) in a decimal form and divide it into the number 1. So a membership organization with an 80% renewal rate would have a lapse rate of 20% and an average tenure of five years (1/.20= 5).
Another way of looking at this calculation is if you have a 20% lapse rate, your membership will turn over every five years.
So what would be the “average”, Average Tenure for membership organizations?
In our 2010 Membership Marketing Benchmarking Report with over 400 participating associations, our average renewal rate was 83%. So this would put the Average Tenure of a member at 5.88 years for the participating organizations.
Please be aware that this is an average for the participating organizations. Some reported renewal rates less than 50% and others more than 90%.
Knowing the Average Tenure of your membership is a crucial data point to use in marketing planning and making long term budget projections.
Showing posts with label Membership Marketing Formulas. Show all posts
Showing posts with label Membership Marketing Formulas. Show all posts
How to Calculate where your Membership is Headed
Last month was really busy. I met with many organizations who are looking for help after a distressing 2009. And some of them do not realize just how much trouble they may be in going forward.
When I meet with groups, I use a simple method to calculate where their membership is headed given their current metrics. It is called a Steady State Analysis.
Using your current data, you can also do this analysis to see what the ultimate equilibrium of your association membership count will be. You can also use the analysis to model where it might be if you add more new members or have higher renewals.
To do the calculation, you only need two numbers; your renewal rate and your total new member input from the past year. Here is how it works. You take your new member input from the past year and divide it by your lapse rate presented as a decimal. So if your renewal rate is 80%, then your lapse rate is 20% or .20.
For example, 20,000 New Member Input / .25 Lapse Rate = 80,000 Steady State Total Membership.
Here is the formula: Annual New Member Input / Reciprocal of Renewal Rate (or Lapse Rate) Shown as a Decimal = Total Membership Steady State.
Here are three examples of how you can project your future membership.
• A 75% renewal rate and 8,000 new members per year will result in a steady state membership of 32,000 members
• An 85% renewal rate and 2,000 new members per year will result in a steady state membership of 13,333 members
• An 80% renewal rate with 5,000 new members per year will result in a steady state membership of 25,000 members
One other thought to consider. From my personal observation, the organizations that I am seeing in the most distress are those that pulled back from marketing this past year. Groups that continued to aggressively market membership actually came through the year in much better shape. This confirms some of the research that we shared at the start of this recession.
When I meet with groups, I use a simple method to calculate where their membership is headed given their current metrics. It is called a Steady State Analysis.
Using your current data, you can also do this analysis to see what the ultimate equilibrium of your association membership count will be. You can also use the analysis to model where it might be if you add more new members or have higher renewals.
To do the calculation, you only need two numbers; your renewal rate and your total new member input from the past year. Here is how it works. You take your new member input from the past year and divide it by your lapse rate presented as a decimal. So if your renewal rate is 80%, then your lapse rate is 20% or .20.
For example, 20,000 New Member Input / .25 Lapse Rate = 80,000 Steady State Total Membership.
Here is the formula: Annual New Member Input / Reciprocal of Renewal Rate (or Lapse Rate) Shown as a Decimal = Total Membership Steady State.
Here are three examples of how you can project your future membership.
• A 75% renewal rate and 8,000 new members per year will result in a steady state membership of 32,000 members
• An 85% renewal rate and 2,000 new members per year will result in a steady state membership of 13,333 members
• An 80% renewal rate with 5,000 new members per year will result in a steady state membership of 25,000 members
One other thought to consider. From my personal observation, the organizations that I am seeing in the most distress are those that pulled back from marketing this past year. Groups that continued to aggressively market membership actually came through the year in much better shape. This confirms some of the research that we shared at the start of this recession.
Know the Numbers on Membership Marketing
'Know the numbers' is the best advice that anyone can give you when it comes to membership marketing. Knowing the numbers can help answer key marketing questions like: 'What is the value of a member?', 'How much can I afford to spend to obtain a member?', and 'What is my membership retention rate?
The following formulas are provided as a handy reference tool for membership marketers to help them take a strategic look at the economics of membership.
Renewal Rate
The following formulas are provided as a handy reference tool for membership marketers to help them take a strategic look at the economics of membership.
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: (105 - 15)/100 = 90% Renewal Rate
- How long on average do members stay 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)
- 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)
- 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
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