Association Management Math: The Seven Critical Equations

By Greg Greg Schultz, CAE, Executive Vice President of Kellen

What’s a member worth to you and how much does it cost to get a new one? How long does your average member stay a member, and how do you know if they haven’t left yet?

You should know the answers to these questions. And your board should know that you know. They’ll take you seriously when you advocate for investing in member retention and development when you know your numbers.

Here are seven math equations that every association manager should use. Measure and track at least once per year.

First, definitions:

1. RETENTION RATE: The percentage of members retained over a given period of time

2. LAPSE RATE (CHURN): The percentage of members that discontinue their membership over a given time period

3. RENEWAL RATE: The percentage of members that renew their membership over a given time period

4. AVERAGE MEMBERSHIP TENURE (AMT): The average length of time a member stays with the organization

5. MEMBER LIFETIME VALUE (MLV): The measure of average monetary value of member based on projected length of membership

6. MEMBER ACQUISITION COST (MAC): The total monetary cost of acquiring a member

7. MLV TO MAC RATIO (MLV:MAC): The relationship between the lifetime value of a member and the cost of acquiring that member

The formulas below are based on an annual renewal cycle, but can be adjusted to use for any time period (monthly, quarterly, etc.). Formulas using dues values are based on a traditional dues structure. Tiered dues should be calculated by levels and then plugged into formulas.

1. RETENTION RATE: The percentage of members retained over a given period of time

CALCULATION: (End Count - New Members) ÷ Start Count = Retention Rate

Example: At the end of 2018 there were 3,000 members (start count). At the end of 2019 there were 2,750 members (end count), which included 75 new members and 175 members who did not renew.

1. 2,750 - 75 = 2,675 (end count – new members)

2. 2,675 ÷ 3,000 = .89 (end count ÷ start count)

RETENTION RATE = 89%

2. LAPSE RATE (CHURN) The percentage of members that discontinue their membership over a given period of time

CALCULATION: Dropped Members ÷ Start Count

Example: In 2018, 175 out of 3,000 members did not renew.

1. 175 ÷ 3000 = .06 (dropped members ÷ # of members end of 2017)

LAPSE RATE = 6%

3. RENEWAL RATE The percentage of members that renew their membership over a given time period

CALCULATION: Number of Renewals ÷ Eligible Members

Goal: The median renewal rate reported in the 2018 Marketing General Membership Study 84%, and 68% of associations report renewal rates of

80% or higher. Trade associations report renewal rates averaging 89%, higher than the 80% average for individual membership organizations and combination membership organizations.

Example: In 2018, 3,000 members were up for renewal and 2,825 renewed.

1. 2,825 ÷ 3,000 = .94

RENEWAL RATE = 94%

4. AVERAGE MEMBERSHIP TENURE (AMT) The average length of time a member stays with the organization

CALCULATION: 1 ÷ Lapse Rate

Example: At the end of 2017, the overall annual renewal rate was 94%, so the lapse rate was 6%.

1. 1.00 – .94 = .06 (1 year minus renewal rate as a decimal)

2. 1.00 ÷ .06 = 17 (1.00 divided by decimal result to convert to whole number)

AVERAGE MEMBERSHIP TENURE = 17 YEARS

5. MEMBER LIFETIME VALUE (MLV) The measure of monetary value of member based on projected length of membership

CALCULATION: Net member-paid revenue ÷ number of members x AMT

Example: In 2018, there were 3,000 total members who collectively invested $550,000 in dues and contributed $325,000 in non-dues revenue. The operating costs were $650,000 and the organization’s AMT (average membership tenure) was 17 years.

1. $550,000 + $325,000 = $875,000 (dues revenue plus member-generated nondues revenue)

2. $875,000 – $650,000 = $225,000 (total member-generated revenue minus total operating costs)

3. $225,000 ÷ 3,000 = $75 (net member-generated revenue divided by number of members)

4. $75 x 17 = $1,275 (average member contributed revenue x AMT)

MEMBER LIFETIME VALUE = $1,275

Note: It’s critical to subtract operating costs from revenue to establish net member-generated revenue when calculating MLV. Do not include revenue such as exhibits and sponsorship that isn’t member-paid.

6. MEMBER ACQUISITION COST (MAC) The total monetary cost associated with recruiting a new member

CALCULATION: Total recruitment cost ÷ number of new members

Example: At the end of 2017, 75 new members had joined and $28,875 was spent on new member recruitment.

1. $28,875 ÷ 75 = $385

(spent on acquisition ÷ number of new members)

MEMBER ACQUISITION COST = $385

Use data to make smart decisions on investing in maintaining and growing your membership. It is necessary to assign an average monetary value to potential membership sales. Conversely, don’t count on increasing membership sales unless you invest.

7. MLV TO MAC RATIO The relationship between the lifetime value of a member and the cost of acquiring that member

CALCULATION: MLV : MAC

Goal: Aim for 3:1 as the target ratio.

<1 : 1 Yikes, better make some changes…fast.

1 : 1 You’re losing money.

3 : 1 Perfect!

4 : 1 Grow even faster by investing more in member acquisitions.

Example: In 2017, the average lifetime value per member was $1,275. $32,000 was budgeted for member recruitment and $28,875 was spent. Breaking down those numbers further means the budgeted recruitment cost was $425/ new member and the actual recruitment spend was $385/ new member.

Goal ratio = 3 : 1 ($1,275 : $425)

Actual ratio = 3.3 : 1 ($1,275 : $385)

The organization spent $28,875 ($385 per new member) on recruitment. This resulted in a MLV:MAC ratio of $1275 : $385 (3.3 : 1). If the organization had instead spent $425 per new member they would have: met the MLV:MAC goal ratio of $1275 : $425 (3:1). spent $31,875, staying within the budget of $32,000. helped the organization to grow faster.

If you are spending more than what is budgeted to bring in a new member, you’re losing money. If you are coming in under budget on your membership development investment, you are slowing growth!

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What is your strategy for attracting new members? Often associations set a membership growth target without a strategy or allocating resources (direct costs, staff time) to actually make it happen. And they often don’t use data to make sure the math works. Yet without an understanding of your cost of acquiring a new member and the lifetime value of each member, you can’t make a smart decision about membership development investments and targets.

About the author: Greg Schultz, CAE, is Executive Vice President of Kellen and responsible for oversight of high-performing teams in multiple U.S. offices.

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