Measuring membership investment and revenue

on 07 Apr 2017 11:55 AM

In this follow-up to last week's blog on membership retention and tenure, we'll look at some formulas that help measure membership revenue and the costs of membership recruitment.

You can use these formulas to answer questions like

How much does it cost to recruit a member?
How much value does a member provide?
What's the maximum cost of recruiting a member?

Cost of recruitment

The formula for this is super simple

Cost of recruitment/number of members recruited.

Organisations recruit members in many different ways. It may be you use direct mailings, or mass email campaigns, or attending trade shows, exhibitions, networking events or recommendations. There are two things which are critical in getting the measure correct:

Take ALL costs into account for each source of membership.
Use a promo code so you can identify which member came from which source.

Example: trade show

Cost to take into account would be:

Staff time preparing and attending the show
Cost of designing and printing publicity materials and other printed matter
Cost of hiring the trade show space and other facilities

Example: direct mailing

Costs to take into account would be:

Staff time preparing written materials
Design costs for written materials
Dispatch costs for written materials
Mailing list costs.

Lifetime value of membership

Organisations need to know how much revenue can be expected from every member that joins. This figure puts a perspective on how much it costs to recruit them in the first place.

Member revenue comes from two sources: membership fees and non-membership revenue. Examples would include purchasing branded goods, attending meetings, conferences, training events and networking events. You may also provide CPD and specialist books and reports. If your membership is other organisations you may get revenue from sponsorship opportunities.

If we add all these these things up and then divide it by the number of members we can get an average non-membership revenue figure.

Our formula for Lifetime Value of Membership is

(Membership Dues + Average non-membership revenue) x Tenure

Example

Membership dues: £120

Non-membership revenue: £80

Tenure: 5 years

(120+80) x 5 = 1000

Membership recruitment costs are an investment

Let's imagine that it cost £100 to recruit that member. Your organisation got £1000 in revenue in return.

So that is not a bad investment at all.

These sorts of formulas are good evidence to properly finance member recruitment. £100 sounds like a lot to begin with - but the returns are evident once you can demonstrate the Lifetime Value.

But that is not the complete story. We need to know how much it is costing us to service a member. We know in the example we got £1000 in revenue over 5 years, but how much did we spend on that member during that time?

Maximum Acquisition Cost

This formula tells us the maximum amount of money we can spend on recruiting a member before we go below a break-even point and start losing money.

What costs do we take into account?

This is the tricky part and takes a bit of time and thinking to get right. There are some costs to an organisation that do not change, whether you have an extra member of not. These would include:

Building and rental costs
Professional fees
Staff costs
Infrastructure costs like website, accounting software and so on.

We do not take these costs into account.

But there are incremental costs that directly increase when we do have an additional member. These include:

Printing and mailing out welcome packs and membership details.
Additional copies of your printed newsletter.
Renewal letters and managing renewals.

We take these costs into account.

So now me need to get some figures that will help us get to the maximum acquisition cost.

Average membership fee. Say £120
Average non membership dues revenue - goods, service and events sold. Say £80
Average non membership dues cost of production of goods, services and events. Say £40
Incremental costs for each new member. Say £20.
Tenure. Say 5 years.