More on retention: Member “life-time value”

In this article I want to return to the issue of member retention vs sign-ups, but this time look at the concept of “member life-time value”.

There’s a lot of debate and discussion about union growth, and one of the increasing areas of focus is on member retention.

A crucial area for unions to look at (and only a very few unions that I’m aware of already do this) is on “life-time value”. That is, the financial contribution of members to the union over the course of their membership (in months or years).

Increasing the life-time value is as important (or more important) in my view as growing the total number of members. In fact, it could be the most important financial strategy for your union.

(Here’s a link, also at the end of the article, to a free “member life-time value” calculator.)

Note: This article is specifically from a union financial and management perspective. It should not be taken as advocating that unions treat or view members as customers or profit centres. Rather, it is a discussion about how union leaders can think about their priorities and strategies using this tool.

In the commercial sector, the concept of “customer life-time value” (CLV) is regularly used. It’s value as a concept is in enabling businesses to forecast revenue by calculating how much a customer is “worth” over the duration of their “relationship” with the business.

There are two factors in this calculation: the amount of profit received per month and the monthly retention rate.

The CLV tool is even more important for businesses that focus on repeat transactions or subscriptions — for example, a software company like Adobe, or a subscription-membership business like a gym.

By boosting either or both numbers, you increase the financial returns for the business.

Now, the obvious parallel for unions is membership revenue, and revenue per member, per month or per year. Overlaying your union’s retention rate can give you a “member life-time value” (MLV).

Once you start looking at the MLV numbers, the importance of boosting your member retention rate is obvious. A long-term member, from a financial perspective, has far greater value than spending to sign up a new member.

(Obviously, there are other important strategic considerations for signing up new members, not just financial. For example, growing and recruiting to build workplace power requires not just retaining existing members but signing up new ones. So I’m definitely not suggesting that recruitment activity cease.)

Understanding the concept of member life-time value, and then working to grow it, is not that well known in the union movement. But as I noted earlier, it is well known with other membership based organisations, especially commercial subscription-based businesses.

I strongly believe that it is a concept that should be embraced, especially for senior union leaders with responsibility for organising and growth, and finances.

A focus on MLV also shows the important necessity for unions to invest in member services, member experience and building member loyalty. (Topics that I’ve written about here and here.) (And by member services, I don’t suggest that unions should prioritise “servicing” over, say, organising. A crucial “service” provided by unions is the experience of collective union action – winning in the workplace – read more about what I mean by “union experience” here.)

For example, when you start to focus on MLV, it helps clarify what drives retention and the causes of resignations/outs/offs.

In addition to having an overall MLV for your union, you can also develop a score for different organising units within your union (e.g. different industries, major employers, geographies), as well as a score for each member.

The focus on this score may sound financially driven, but in fact it will assist in improving your union’s focus on member engagement and positive member experiences (and participation) of their union.

For example, it can help you make decisions about investments in new programs — for example, the micro-credentialing programs many unions are establishing, or the value of services like Union Shopper. Or it can help you prioritise financial resourcing decisions — like: “is it better to invest in more delegate training or more growth organisers?”

The MLV calculation can also help you evaluate the benefits of specific investments in member retention programs.

A small percentage increase in retention can have a big impact on your union’s finances.

This customer life time value illustration not from a union context demonstrates how inching up retention rates can have a big impact

In the charity sector, the concept of “donor life-time value” (DLV) is well known, and for large fundraising organisations, the DLV score drives big parts of their donor retention programs.

For example, major fundraising charities calculate the “cost of acquisition” of new donors down to the cent. They can forecast with great accuracy their cash flow from existing and new members, and consequently, over the past few years these organisations have invested heavily in donor retention.

A big change is how budgets are allocated within these charities. Because both retention and acquisition of a function of how much you spend on both activities, effective charity fundraisers are spending a significantly greater portion of their budgets on retention activities, simply because they have a greater return.

A new regular monthly donor may cost a charity around $300 to acquire — which would take a year and a half of donations to break even. If that donor “churned” before that point, replacing them would cost another $300. However, spending $80 or $100 on retention activities could see the donor remain a regular giver for 3 or 4 years, for a “life-time value” of $720 (or a net LTV of $320).

For union members, where annual dues can be $700 or more per year, a longer member life-time obviously has a greater financial impact for the union than spending resources signing up a new member.

(Again, none of this is to say that unions shouldn’t sign up new members. They absolutely should.)

To conclude this newsletter, I’d like to provide a link to a Google spreadsheet that will allow you to calculate your member life-time value.

To use this spreadsheet, you’ll need to know your union’s cost of new member acquisition, as well as your churn/retention rate, how much you currently spend on retention and yearly servicing cost.

Have a play around. I hope it’s useful.

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