Contact

Membership 101: Life Time Value

One of the questions I get asked a lot is: “How much should I be willing to invest to recruit a bar graph with people of increasing size illustrating life time value of a customermember?”

The answer is not obvious.

For example, let’s say you invest $1000 on a recruitment campaign and bring in five new members. That means you spent $200 each to acquire those members.

(Don’t get distracted by: “But I contacted 100 people, so I only spent $10 per person.” No, you didn’t. 95 of those people didn’t join.)

What if your annual dues are only $100?

Was that campaign a waste of money?

It looks like it might be, but it’s not necessarily, because of something called the Life Time Value (LTV) of membership.

Hopefully, at least a few of those five people you recruited will renew for years two, three, four, and beyond.

Even if they don’t renew, they may do things in that membership year like register to attend your conference, or buy a book or a webinar, or contribute actively to discussions in your white label social network, or boost your social media signals to their own friends, fans, and followers.

All that other stuff? That’s LTV. The total value the association receives from a member encompasses far more than just one year’s dues payment.

That means it’s probably OK to invest more than the value of one year’s dues to get a new member. But how much more?

That’s where things get tricky.

Marketing General has some helpful base formulas you can use as a starting point.

The simplest way to think about LTV is to add average dues plus average non-dues revenue and multiply that by average membership tenure (which MGI also helpfully explains how to calculate).

That provides a good baseline calculation, but there are two potentially significant issues that would skew that calculation.

  1. Not all members behave the same.
  2. It ignores the value of non-financial contributions.

You almost definitely have different segments of members who behave in very different ways. Large companies versus small companies. Domestic members versus international members. Students versus established professionals. Young professionals versus retired and retiring members. Members in regions with active chapters versus those in regions with dormant chapters. They may pay different dues amounts, have different average membership tenure, and have very different purchasing patterns. Those would lead to very different answers about the level of appropriate investment to bring them in.

A large company that pays a large sum for dues, and is likely to be with you for many years, send teams of people to your meeting every year, and require their managers to earn your certification merits a much larger investment than a mom-and-pop business that’s likely to be acquired by a larger competitor within the next three years.

You should to create LTV member segments just as you would for the other types of member engagement we’ve discussed throughout the Membership 101 series. And you need to document those segments and the assumptions you’re making about their behaviors so that your LTV calculations can be consistent over time.

Also, as I hope is now apparent to you after reading some of these Membership 101 posts, “value” is not just dollars. Members contribute to the good of your association and the profession or industry you serve in all kinds of ways that have no price tag attached to them. How do you “value” things like service on your board of directors or committees, speaking at your conference, writing an article for your magazine, presenting a webinar, mentoring young professionals, and encouraging colleagues to join your association for purposes of LTV calculation?

I can’t tell you. The answer to that question is unique to every association, and you can only decide what it looks like for yours by sitting down and talking it through with your team members.

What I can tell you, though, is that you do need to think about it. I hope it strikes you as absurd to ignore something like board service in calculating LTV. It’s equally foolish to ignore those “smaller” contributions.

You need to document which non-financial contributions you’re including (and which you’re not, and why), how you value them, and how they match up with your membership segments, just as you did with direct financial contributions, so you know the assumptions that underlie your LTV calculations.

Then you test those LTV calculations against reality, and, with all your segments and assumptions documented, if you discover a mismatch, you know what levers to push to improve.

Image found here.

Buffer this pageEmail this to someoneShare on FacebookShare on LinkedInShare on Google+Share on TumblrTweet about this on Twitter
This entry was posted in membership and tagged . Bookmark the permalink.

2 Responses to "Membership 101: Life Time Value"

Leave a reply

Time limit is exhausted. Please reload CAPTCHA.