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Budgeting for Membership Retention and Recruitment

What is the economic benefit to your association if a member renews for 10 consecutive years? What is the cost of getting a new member, and how much are you willing to spend? What’s the average length of membership in your association?

These are important questions to ask when you work with your colleagues in membership to develop a budget and marketing campaign to retain and enroll members. The following formulas will help you determine the lifetime value of a member in your association.

1. Retention formula

How many members do you retain each year?

For example, if 920 of 1,000 members renew, your retention rate is 92 percent.

2. Loss formula

How many members dropped out this year?

For example, if 80 members drop out from an eligible renewal base of 1,000, the loss rate is 8 percent.

3. Turnover period

This is a key to the formula for determining lifetime value. The turnover period is the time in which your entire membership will disappear at your current loss rate if you obtain no new members.

Thus, with an 8 percent loss rate per year, it would take about 12.5 years to wipe out your membership.

4. Average member tenure

If your membership turns over in 12 1/2 years, some members are staying one year, while others are staying much longer. The average member is going to stay just over half of the turnover period—but for our purposes, the simple formula of half the turnover period is a close approximation.

5. Cost of serving members

Although this is an overly simplified formula, you can determine a rough cost per member by dividing the number of members by your total expenses.

For example, if your association has $350,000 in expenses per year and a membership of 1,000 members, the cost to serve a member is $350 each. (It may be practical to remove some expense line items, such as political contributions and scholarships, if they are part of independent programs.)

6. Lifetime value of a member

Knowing the lifetime value of a member allows your association to realistically determine how much to spend in a membership campaign to enroll a new member. The lifetime value of a member includes both annual dues and projected non-dues income (such as convention registration, book sales, donations, etc.). In the example we’re using here, you have determined that the loss rate is 8 percent and the average member stays for 6.25 years.

• Lifetime dues income formula. When you multiply average member tenure by the annual dues amount, you obtain the dues–income value of a new member. For example, $400 annual dues X 6.25 years results in $2,500 expected dues income from one new member.
   

• Lifetime non-dues income formula. If you don’t know the non-dues income value, use this simple formula. Add all the non-dues income line items in your budget and divide the sum by your total number of members. For example, in an association with $400,000 income, let’s say $125,000 is generated from non-dues. Thus, divide $125,000 by 1,000 members and you determine the non-dues income is $125 per member. Multiply this by 6.25 years (average member tenure), and you can generalize that the non-dues lifetime value of a member is $781.25.
  
  Add the lifetime dues income to the lifetime non-dues income (for example, $2,500 + $781.25 = $3,281.25) to get anticipated revenue across the 6.25-year average expectancy of the member’s renewals. Thus, for every new member, you’ll receive approximately $3,281.25 across the lifetime of his or her participation in the association. If you can keep the member longer than 6.25 years, you will improve the value of the member.

7. Cost of enrolling members

Few associations know how much money to budget for getting new members each year. For instance, what should you plan to spend on printing, mailing, calls, and staff time? Once you know the lifetime value of a member, you should be willing to focus additional energy and funds on membership development.

Here is one formula for determining the cost of enrolling members.

Enrollment Cost = Lifetime Value – (Average Annual Cost to Serve a Member X Average Member Tenure)

Thus, in our example, the lifetime value of a member is $3,281.25. Subtract that from the cost of serving a member across the 6.25-year period of membership ($350 X 6.25 = $2,187.50) to determine the profit for enrolling the member. In this case, if you enroll a new member who is likely to remain in your association for 6.25 years, the profit is $1,093.75. Compare that to the one-time cost of acquiring a new member (in mailings, promotions, first-year dues discounts, and so forth) to see whether your marketing operations are making sense—and making money.

Naturally, the many factors that influence the quality of your services also affect the duration and profitability of membership. If you create a careful strategy, your association may be able to reduce the cost of serving a member, increase the non-dues income per member, or reduce the loss rate to keep members longer—thus improving your profitability per member.

A final note

This is only one set of formulas—not a blueprint for every association. I recommend using these formulas with both caution and conservative estimates. That said, the information may give you a new perspective when your marketing and meetings departments develop your association’s next budget for retention and recruitment.

Robert C. Harris, CAE, is chairman of the Nonprofit Resource Center in Tallahassee, Florida. E-mail: bob@rchcae.com. Copyright 2004 Robert C. Harris, CAE.

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