Why unions should understand member lifetime-value
May 26, 2014
All unions want to grow and increase their membership. Significant efforts and resources are devoted by unions to recruitment and the effort of signing up new workers to be members.
The cost of signing up new members however can be substantial. These can include hiring and training new staff, resourcing them (e.g. cars, phones, computers, offices and running costs) and transaction costs for processing the new members. There is additional risk, which is that the member resigns shortly after joining the union, or never becomes financial for another reason, thus creating the financial problem for the union that the recruitment costs are never recouped.
For union leadership, balancing the cost to recruit new members against their life-time value to the union is a major challenge. Unions that can both measure and balance these two numbers are likely to be more successful than those that do not. If the cost to recruit routinely and systematically outstrips the life-time value of a member, then the union has problems.
From what I’ve seen, most union officials know the rough cost of recruiting a new member; anecdotally, I’ve seen organisers focus on specific types of workers to recruit because of the view (rightly or wrongly) that they’re more profitable for the union. This view comes from a rule-of-thumb understanding of the cost to recruit. It is also why many unions resist calls to reduce their membership fees or offer free or discounted memberships — the cost of signing up those free or discounted members is the same as signing up a full dues-paying member.
Understanding the life-time value of members therefore is essential.
Simply put, the member lifetime-value is is the member’s “cost of recruitment” minused from their expected future dues payments. It is the “net revenue” of a member over a specific time horizon. The horizon is obviously their expected membership tenure, the average of which will vary by union and industry.
For example, assume that it costs $500 for a union to recruit a new member. This could be the accumulated costs of the organiser’s wages, and communications-spend on the bargaining campaign in which the new member joined.
The membership fee of the union is $460 per year and the average membership length is 3 years.
Is this a good investment for the union? Many people would say ‘no’, because it looks like the union loses $40 every time they sign up a member.
Using a lifetime-value calculation however the value to the union of that new member as $880 (3 x 460 = 1380 — $500). (This doesn’t take into account of the time-value of money.)
This means for every $500 you spend, you make a “profit” of almost $900 over 3 years (a fairly good investment return of around 80%). The union should definitely sign up that member.
You could make this more accurate by also including the “cost to service” — for example, what the average cost to provide industrial representation, etc, as well as overhead (running costs for the union).
Unions can improve member lifetime-value by lowering the cost of new member recruitment, or by trying to extend member lifetime so that they pay more membership dues. On the management side (as opposed to communications side), you could also try to reduce fixed costs or improve organisational efficiency (e.g. reduce transaction/banking costs or administration costs).
An example may be a lead organiser having to choose between recruiting new members or running a campaign to keep existing members. The lifetime-value calculation can assist, by showing in concrete terms the costs associated with one decision or another; does the new member recruitment provide a better return than the retention campaign?
Looking at member lifetime-value is a more effective way of looking at and calculating membership recruitment campaigns. Traditional methods look at the first-year’s membership dues only; this creates an impossible and unrealistic pay-back time period.
In fact, a member who remains a member is more valuable to a union because their average acquisition cost decreases for each period (3, 6 or 12 months) they remain a member. So in the example earlier, the $500 cost to recruit is actually really $166 per year over three years. (Of course, you wouldn’t use these figures in your union’s financial statements.)
Additionally, the simple aggregation of new members results in a focus on growth through recruitment, rather than complimentary measures, such as retaining members and retaining them for longer periods.
Lifetime-value also really highlights the absolutely importance and central role that delegates and activists play.
Just to quickly touch on this, when a member signs up another member, not only is the recruiting member doing so at almost no cost to the union, but they are in effect retrospectively reducing the cost of their own recruitment.
This word-of-mouth ripple effect dramatically increases the effectiveness of your union’s campaigning and communication activities.
For communications officers and campaign managers at unions, lifetime-value measurements can help provide you with some hard numbers to use when considering the costs of campaigns. Rather than expecting immediate payback time frames, lifetime-value means you’re better able to measure the true value of a bargaining or recruitment campaign, and of your delegates, especially if there is a focus on retaining members or extending their membership lifetime.