Wednesday, November 18, 2009

How high is high and how low is low? Steady State Analysis is your "Early Warning Advisor"

Have you ever wondered how much your membership will grow or decrease if you did not change anything?

Well, here is a handy formula that will help you determine "...how high is high and how low is low" when talking about your membership numbers. The formula is called 'Steady State Analysis' and is one of the most important, foundational, formulas you can use to assist you in developing your member acquisition and member retention strategies.

Steady State Analysis defines the equilibrium of total membership where members gained will equal members lost.

The calculation: Annual New Member Input/Lapse Rate = Steady State Membership

What is "Lapse Rate?" It is the inverse of your Renewal Rate. So, if your association has an 80% renewal rate, your lapse rate would be 20% or .20.

Here are a few examples of how to calculate Steady State Analysis:

Annual New Member Input: 1,000

Lapse Rate: .20

1,000/.20 = 5,000
5,000 members is where your association will eventually end up if everything that has impact on your member acquistion and renewal remain the same.

"So what" you may say? Here's the kicker.

If your association has a membership of 2,500, your doing well. Or as my soccer coach Mr Spier would say, "Your in like Flint."

BUT, if your association has a membership of 10,000, you (obviously) have a problem.

While this formula does not indicate 'when' your association will end up at Steady State, it does tell you that, given current conditions remain constant, where you will end up here eventually.
THE most important aspect of this formula is that it can help you immediately identify how best to use your financial and talent resources.
If you're growing, reallocate the money that you were going to use in acquisition to other areas that are not doing so well. Or, if you're growing but not fast enough, allocate the acquisition money into testing new channels or doubling your current efforts.
If you're shrinking, then its your 'Early Warning Advisor' letting you know that you have to change something. This gives you the time to diagnose where the problem is and develop a plan and allocate the resources to correct that problem.

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