> [log in to unmask] (Sallyclark) writes:
> Does anyone have any suggestions for estimating the "lifetime value" or of
> a member to the art museum in terms of future membership and other cash
> contributions?
>
> In other words is there a formula for economic impact on the institution
> if we bring in 10 members. We can calculate renewal rates, but what other
> factors and or values should be calculated?
>
> TIA for any assistance.
> Sally J. Clark
> Director of Evaluations and Research
> Art Institute of Chicago
>
>>>>
The short answer is:
The economic impact of bringing in 10 members depends on how you bring them in
and how
you intend to keep them. There is no fixed formula for that
And the long answer...
I've found that one of the best methods is to identify as many constants as you
can and
attribute your current conditions to those constants. The following example
demonstrates
one method to evaluate your membership program. I apologize for any math
mistakes I
might make in advance, I m going to try and knock this example out as fast as I
can.
You currently have 5,000 members. 1,000 are new, 3,500 are between 2 and 4
years and 500
have been with you for 5 years or more.
Lets say your membership program has the following costs
Membership Coordinator $30,000 (Full time position)
New Member Acquisition $15,000 (Direct Mail)
Membership Benefits $30,000 ($6/member)
Renewal Invoicing $15,000 ($3/member)
Marketing to Current
Members $7,500 (Additional Appeals)
Total Cost $90,500
New members are currently renewing at %45 and on average generating $40 in
revenues.
Members who have been with your organization for 2 to 3 years are renewing at a
rate of
%60 and contributing $60 on average.
Members who have been with your organization for 5 or more years are renewing
at a rate
of %80 and contributing $95 on average.
A new member acquisition campaign was conducted and $15,000 was spent to bring
in 1,000
new members. These members brought an average of $40 each.
This campaign will be conducted each and similar results are expected.
You current membership base has the following projected value
1000 * $40 = $40,000
1000 * .45 * $40 = $18,000
3,500 * .65 * $60 = $136,500
500 * .90 * $95 = $42,750
Projected Revenue = $197,250
Total Cost = $90,500
The surplus is going towards a community enrichment program.
The cost of a single membership is according to current expenditures is:
Membership Coordinator $6 per year ($30,000/5,000 Members)
New Member Acquisition $15 one time ($15,000/1,000 New members)
Membership Benefits $6 per year ($30,000/5,000 Members)
Renewal Invoicing $3 per year
Marketing to Current
Members $1.50 per year
Cost per year $30.50 first year/$15.50 for subsequent years
The current value of each new membership prorated over 5 years is calculated by
adding
the average amount brought in by a new member plus the expected renewal rate
multiplied
by the expected revenue. You then multiply the renewal rates of each year by
each other
so that only the remaining percentage of the membership is multiplied by the
expected
income.
40+(.45*40)+(.45*.65*60)+(.45*.65*.65*60)+
(.45*.65*.65*.65*60)+(.45*.65*.65*.9*95)=
40+18+17.50+11.41+7.42+6.87 = $101.20
The cost of a membership over 5 years is calculated by taking the entire first
years cost
+ the renewal cost for the entire previous years members which is $3 per member
(you pay
to renew them even if they don t renew) + the cost associated with maintaining
a
membership for 1 year which is 12.50 (15.50-3).
30.50+[(.45*3)+(.45*.65*12.50)]+[(.45*.65*3)+
(.45*.65*.65*12.50)]+[(.45*.65*.65*3)+
(.45*.65*.65*.65*12.50)]+[(.45*.65*.65*.65*3)+
(.45*.65*.65*.65*.9*12.50)]=
30.50+5.01+3.25+2.12+1.76= $42.64
So your the value of 1 new member today, spread out over 5 years is approx.
101.20-42.64=
$58.56
Future forecasting:
Now the picture is a little different because according to the above analysis,
your
membership base will decreased by [(1000*.55)+(3500*.35)+(500*.10)]=1,825
Members. The
numbers I chose don t accurately reflect a membership program but it made the
math
simpler. But if this large drop in members was expected, how should your
organization
react?
So after doing this analysis, you decide that if you don't put more funds into
new member
acquisition, your membership base will decrease, reducing your total revenues.
But with
a limited budget, you need to decide where the money comes from. If you move
it from
another membership expense, it will change your renewal rates.
If you cut back on benefits, go from sending 4 renewal notices out down to 3,
and cut out
your end of the year appeal, you will have more money to spend on new member
acquisitions
but your attrition rate will increase. This will make the value of a lifetime
member
decrease. However if you increase your membership, while keeping your expenses
the same,
the value of a member over time will increase. It depends on how you implement
the
change.
If you spend more money on marketing to existing members, you renewal rate and
giving
rate will increase while your new member acquisition will decrease. This
however, will
make the value of a lifetime member increase.
The best possible choice would be to invest in both new member acquisition and
your
current base. This of course impacts other programs your organization is
involved in and
has to be weighed against that effect.
Membership programs are difficult to manage because of their revolving nature
and the
delayed effect of your investment decisions. In order to proactivly manage
your
membership, you need to develop and refine a forecasting model that seems to
work for
your organization and make decisions based on that forecast.
Robert Guinn
Senior Programmer
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Omnium Gatherum Membership Management & Fund Raising Software
-An innovative tool for long term growth-
Voice: (415) 564-9736
Email: [log in to unmask]
Fax: (415) 731-4755
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