- Renewal Rate
- Average Tenure
- Lifetime Value (LTV)
- Maximum Acquisition Cost (MAC)
- Steady State Analysis
I've spoken on these many times and I'm sure you all have read something on them at one time or another. But as my high-school coach would always work us on the "fundimentals," I think a review of these metrics and how we calculate them is never really ever wasted time.
- Measures the number of members that you keep over a specific period of time, usually 12 months.
- Formula: (Total Number of Members Now - New Members gained over the last 12 months) / Total Number of Members Last Year
- Example: (10,000 - 2,000)/9,500 = .8421 or 84.21%
- Measures how long a member stays.
- Formula: 1 / (1 - Renewal Rate)
- Example: 1 / (1 - .8421) = 1 / .1579 = 6.333 years
Lifetime Value (LTV)
- Measures the average anticipated revenue from a member.
- Formula: Assume Dues of $125/yr and Non-Dues Revenue of $100/yr, (Dues = Non-Dues Renvenue) x Average Tenure = LTV
- Example: ($125 + $100) x 6.333 = $1,424.92 LTV
Maximum Acquisition Cost (MAC)
- Measures the Net Lifefime Value of a member by deducting incremental costs associated with member services, cost-of-goods sold, etc.
- Formula: Assume Incremental Costs = $50, ((Dues + Non-Dues Revenue) - Incremental Costs) x Average Tenure = MAC
- Example: (($125 + $100) - $50) x 6.333 = $1,108.275
Steady State Analysis
- By considering the number of new members acquired in relation to the expire rate, this metric projects ultimate membership size where the number of members coming in will be equal to the number of members leaving.
- Formula: Annual New Members Acquired / (1 - Renewal Rate) = Steady State
- Example: 2,000 / .1579 = 12,666 Total Membership
- Please note that this does not give you the 'when,' just the 'how much.'