Tuesday, November 30, 2010

Membership Basics - It's in the Numbers

In the world of membership marketing we use basic metrics to measure our progress. These metrics are:

  1. Renewal Rate
  2. Average Tenure
  3. Lifetime Value (LTV)
  4. Maximum Acquisition Cost (MAC)
  5. 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.

Renewal Rate

  • 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%

Average Tenure

  • 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.'

No comments:

Post a Comment