The first step to making your membership business better is knowing where you can improve, that’s where key performance indicators (KPI’s) come into play. KPI’s are measurable metrics, used to evaluate your business goals, objectives, and overall performance.
We recently updated our dashboard to automate these metrics for our customers, so if you’ve seen the new dashboard and you’re wondering what to do with it, this post is perfect for you! Luckily, if you’re not working with Memberful, and you’re looking for actionable and measurable ways to grow your business, this post is for you too.
Member churn rate
Understanding your member churn rate is valuable because it has a direct affect on your service’s profitability. If you’re looking to grow your business, your rate of member acquisition should exceed your member churn rate. Industry benchmarks for subscription based businesses show the average churn rate of a healthy business to be around 6.7% annually, the window being between 5-7%. A high churn rate is an indication that you should implement strategies to make your members “stickier”.
Use member surveys to decrease churn
HubSpot recently wrote an article on actionable ways to decrease your churn rate. One of the ideas they mention is asking customers for feedback often. If your membership site has a high churn rate, consider sending a regular survey to your members. Ask them what they find most valuable about their membership. Then, leverage that member feedback to drive down your churn rate.
How we calculate churn
To calculate your member churn rate, divide paying members lost in the last 30 days by paying members 30 days ago, then multiply that number by 100. With Memberful, we consider the following events to be a paying member loss:
- 100% coupon assigned to a subscription.
- Subscription deactivation.
- Subscription deletion.
- Member deletion.
Only members with a subscription to a recurring plan are considered as paying members. This means members who make a one-time payment or a fixed number of payments are excluded from our churn calculations.
It's also important to note that for plans the renew annually, we don't start calculating churn until 1 year passes.
Think of the lifetime value (LTV) of your members as the net amount of a customer contributes over the lifespan as a customer. This metric shows you what your customer is “worth” to your company, while also informing how much you can reasonably spend on acquiring customers. For example, if your average member pays $100 a year over a three year period, your average LTV is $300. So, if you want to have a profit margin, it makes sense to spend less than $300 to acquire that customer.
Try rewarding member loyalty
Research has found that just a 5% increase in customer retention can increase profits by 25% to 95%. The same study found that it costs six to seven times more to gain a new customer than to keep an existing one. Try rewarding member loyalty through discounts, early access, and partnerships. This can help you increase customer retention, and in turn, profitability and LTV.
How we calculate LTV
We calculate LTV by dividing average monthly recurring revenue per member by member churn rate.
Monthly recurring revenue
Monthly recurring revenue or MRR is a crucial metric when it comes to businesses that run on renewable subscriptions because once you acquire a new subscriber, you can rely on recurring revenue and worry less about one-off sales. MRR is one of the most significant indicators when it comes to the health of your membership business because being able to forecast next month’s revenue makes it possible to make informed sales and marketing decisions that impact the trajectory of your businesses growth.
Adjust your pricing model
There are multiple ways to increase your MRR, for example, Mention successfully tripled their MRR in just one year by implementing multiple marketing strategies, one of which was adjusting their pricing model. They got rid of their ‘free plan’ in order to change the perceived value of their offering, and added an ‘enterprise’ level plan that fits the needs of larger companies. Once implemented, these strategies resulted in an average 296% increase in revenue per account.
How we calculate MRR
To find MRR, you multiply the number of customers by the average billed amount.
We calculate MRR for each standard plan and/or Date-based plan for the whole site and normalize this metric for non-monthly plans. For example, if you have an annual plan which costs $120 a year we add $10 to MRR.
Average monthly recurring revenue per member
Knowing the average monthly recurring revenue per member can serve as benchmark for your business, giving you the ability to project member and revenue targets. To find average monthly recurring revenue per member, we divide the average monthly recurring revenue per member by the number of paying members.
Focus on customer worth
You can use the average monthly recurring revenue per member metric similarly to how you implement MRR for your business, but with more focus on individual customer worth. For example, if you're a publication requesting audience supportand you know that you'll need $180,000 annually, you would need 3,000 subscribers paying an average monthly recurring revenue of $5 month.
How we calculate monthly recurring revenue per member
We only take standard and Date-based plans into account with this metric. So if a member has a 100% recurring coupon, they would be excluded from this metric.
Make it actionable
Each individual metric is like a puzzle piece that adds up to the entire image of what your membership business should focus on to grow; but remember, data has no real value unless you do something with it. Metrics are outputs, not inputs, and impacting your membership business’s controllable inputs are what will help you not only improve your KPI’s but also grow.