Saturday, February 7, 2009

Important Membership Marketing Formulas

Posted by Princess Eva Angelica at 11:15 AM
This past week, I had the privilege of leading a board retreat on growth strategies. We went over the following membership formulas and I promised to post them on this blog for the board members to review. I hope that they are helpful to all of my readers.

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: (10,500 - 1,500)/10,000 = 90% Renewal Rate
Average Tenure
  • Average Tenure measures how long on average a member stays 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)
  • Life Time Value measures the revenue stream that a member will produce.
  • 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)
  • Maximum Acquisition Cost measures the long term net incremental value (or margin) of a member.
  • 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
Steady State Analysis (or Potential Analysis)
  • Steady State projects the long term equilibrium of a membership based on current new member input and lapse rates.
  • Annual New Member Input / Reciprocal of Renewal Rate (or Lapse Rate) Shown as a Decimal = Total Membership Steady State.
  • Example: 20,000 New Member Input / .25 Lapse Rate = 80,000 Total Membership.

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