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
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:
Cost to take into account would be:
Costs to take into account would be:
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
Membership dues: £120
Non-membership revenue: £80
Tenure: 5 years
(120+80) x 5 = 1000
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?
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.
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:
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:
We take these costs into account.
So now me need to get some figures that will help us get to the maximum acquisition cost.
Our formula is
(Membership fee + Non-membership revenue) - (Non-membership costs of production + Incremental costs) x Tenure
(120 + 80) - (40 + 20) x 5
(200-60) x 5 = 140 x 5 = 700
So in this example our MAC is £700 where we are breaking even. Anything less means we make a surplus, anything more means we make a loss.