One of the most important elements of financial stability and sustainability is membership. Within membership there are four fundamentals: growth, retention, member usage and member satisfaction.
Much of the industry has evolved from “by invitation only” to creating more aggressive means of attracting new members in a more competitive world. There have been two typical paths of increased aggression. The first is discounting, aggressive incentives and other short term “fixes” which have done little to address core issues prohibiting organic, internal growth and often resulting in an annual re-occurring necessity to “make deals” and a devaluing of the membership overall. With only price or incentive-based programs, nothing ever changes. You get members on gimmicks, but if they aren’t getting what they need, they soon leave.
The second, more long term and strategic direction involves determining core issues mitigating membership success, including market strength, your current offerings including categories of membership, events and activities and a brand image that creates attractiveness and value. In the “gimmicky” process, attrition may be talked about, but little effort is placed on changing the fundamental value. By creating strategy toward greater relevance and member engagement, value is created, and members stay longer, often organically referring friends to share in the kinds of activities that your market says it wants and needs.
MembershipRx engages the strategic path. As a total membership solution, ClubInsights created a system to identify the issues mitigating long term success, establishing a unique retention process and tracking system that personalizes member experiences, guiding continuous improvement through member feedback, determines what members want and provides 24/7 access between members and club. The system recognizes that retention, through an enhanced member experience is the key ingredient to a sustainable membership and financial security. Essentially, as provided in last week’s blog, and reinforced by Michigan State University researchers, the following is a baseline formula for retention.
The MembershipRx Blueprint for Retention = Engagement + Experience + Sentiment
Why Retention? What follows is a clear and concise overview of the importance of retention efforts, gauging the value of retention and driving an enhanced member experience, increasing value perception and creating organic growth.
Determining Your Lifetime Value of Membership (LV) – Clearly the cost of attracting a new member is sufficient to want to try and keep them for as long as we can. But let’s look at what constitutes that value. (Simply calculate your lifetime value of membership using the formula below)
Initiation Fee + Annual Dues + Ancillary Spending X Years of Membership = Lifetime Value
At 6% (industry average) attrition a club with 600 members is averaging 16.6 years as members. At $800 per month dues and $400 in ancillary spending, at 6% attrition the club grosses $239,040 per member. This equation does not include banquet spending or the value of referring new members. ($1200 monthly spending x 12 months x 16.6 years tenure.)
At 14% attrition, your members are averaging 7.14 years. At $800 per month dues and $400 in ancillary spending 14% attrition grosses $102,816 per member, minus any major banquet spending or the referral of a new member. The difference in 14% attrition and 6% attrition relative to lifetime value of the membership is a 57% reduction in gross revenues at the higher attrition rate.
Downside Risks of Unregulated Attrition – The greater the need to replenish lost members, the more likely incentives, discounting and other price related perks are required, diminishing brand value. Pricing models often create cash flow issues by necessarily reducing member services. The less relevant the member experience becomes, the greater the losses and pressures to replenish.
As the table below indicates, if you are a club of 800 members with 14% attrition, your unreplenished loss in dues revenue alone on an annual basis could be as high as $1,075,200. Even as this club replenishes lost members, at least some portion of these dues would be the casualties of attrition.
Obviously, with ongoing replenishment efforts not all of these losses would likely accrue, however the higher the attrition rate the greater velocity of new growth is required to maintain cash flow. The loss of cash flow manifests either in increased costs, reduction of services or assessments, or some combination. These, in turn, can create additional member losses. Hence the term “death spiral”.
A key question regarding attrition is what is causing it to happen. In the simplest of terms there are controllable and uncontrollable reasons that member leave. What we have talked about above as financial conditions mandate cutting services, members will begin to question the value of what they are paying, begin comparisons with competing clubs and may simply quit.
Here are the most prevalent reasons that members will leave.
- Controllable Reasons: Lack of Use, Dissatisfaction
- Uncontrollable Reasons: Health / Death, Moving Away
- Excuses: Financial, Lack of Time
On average, clubs that are conducting exit interviews, and it’s a good practice if you don’t, are reporting anywhere from 14% to 60% leaving for controllable reasons or excuses. You may wonder why “financial” is included as an excuse. In my 50 plus years of experience, members will give up something else in their life before they will give up the second community.
Often, research confirms that if a bad experience goes unrectified, it can also lead to even the best members leaving. This situation as well as the other controllable reasons clearly suggests the necessity of a system that engages the member long before leaving becomes an option. Remember the old adage that bad news is repeated far more frequently than good? Guess what, in the private club world it happens all the time.
So, imagine if you could reverse 50% of the member’s decisions to leave. With MembershipRx you can. Even better, as you are creating greater retention through enhanced member engagements, value increases and members are more organically referring new members to the Club.
Enhanced Member Engagement = Reduced Attrition + Increased Organic Growth
Reduced Attrition + Increased Organic Growth = Net Growth, Increased Value & Sustainability
The Enhanced Member Experience – Finding out what members want and what they believe most important to their experience by gender, age, family make-up and time, is critical to building a strong retention program. Members who are engaged socially in doing the things that matter to them are simply less likely to leave, even if they are forced to make other financial changes in their life. When the Club is their community, it’s a difficult decision to walk away. Emotional connectivity and sentiment are the positive results of building a strong foundation on the member experience.
Next week we will delve into building a solid member experience. In the interim, I’d love to share more about our unique, total membership solution, MembershipRx. I’m ready when you are….