How Big Will You Get? – Doing The Math
Businesses grow when we make data driven decisions. Let’s talk about the data that we can monitor to increase our membership count.
Calculating the potential size of your membership based business is really pretty simple. There are two key numbers that you need to know:
- Monthly Enrollment Count – The number of new enrollments that you add per month.
- Monthly Attrition Rate – The percentage of members that leave per month.
Given these two numbers you can calculate the potential size of your business using the following formula:
Potential Size = 100 * Monthly Enrollment Count / Monthly Attrition Rate
It’s also not hard to build up a model of how a location would grow assuming values for Monthly Enrollment Count and Monthly Attrition Rate. Here is an example:
Take moment and let this sink in. This model assumes a constant Monthly Enrollment Count of 10 new members per month. It then varies the Monthly Attrition Rate from 2% to 10%. The curves gradually approach the Potential Size (calculated using the formula above) where the number of enrollments per month equal the number of members loss per month.
What Levers Can I Pull?
Given the above model, we would like to maximize our Monthly Enrollment Count and minimize our Monthly Attrition Rate. Let’s discuss how we can influence these two numbers.
The Monthly Enrollment Count is influenced by the amount and effectiveness of your marketing campaigns and how well you convert these leads to members.
There are free (or low-cost) and paid campaigns that you can use to create new enrollments.
- The free campaigns typically boil down to word-of-mouth promotions that encourage your current members to bring in referrals. Some examples of these type of promotions are: public events, bring-a-friend days, birthday day parties, referral bonus plans for your members…etc. These type of promotions typically have low cost (e.g. fliers) but rely on effectively engaging / exciting current members to participate in the promotion. Try to make this a win / win situation by having your current member benefit (not necessarily financially) by bringing in their friends. For example, during bring-a-friend days have your current members stand out / demo / show off a bit. Gaining new members via referrals has the side benefit of having these new members with “built in motivation” to come take sessions with their friend.
- The first step in running a successful paid campaign is to determine your total budget. Now allocate a portion of the total budget for each of your “channels” (e.g. Facebook, Newspaper…). Be sure to not spread your budget too thin on any one channel. When choosing your channels, consider not only cost, but other factors such as reach (total number of people) and how well the channel targets (total number of people who are in the market for what you are selling). Some channels have a large reach but don’t allow you to target, while others allow you to target but don’t have a large reach.
Conversion of a lead into a member is has many dimensions (e.g. first impressions, pricing, perceived benefits..etc). If you have the best product in the world, but can’t communicate the benefits and emotionally excite some to buy you will have problems increasing your Monthly Enrollment Count. Understand the benefits of your membership and rehearse communicating them. Practice with a friend or co-worker. Drill this until it becomes second nature. Don’t engage in tactics that may work in the short-term and hurt your long-term reputation (e.g. over-promising, lying…etc). Do attempt to understand your potential customer’s needs (listen / listen / listen) and help them understand how a membership at your business achieves their needs.
The Monthly Attrition Rate is inversely related to how happy your members are at your business. Happier members generally equate to a lower Monthly Attrition Rate.
- First, remember why they joined and keep uphold your end of the deal. Deliver on the values that you preached during the initial sale.
- Always keep in mind who is paying the bill. If you cater to children, absolutely keep the little ones having fun and learning. But also continue to show how your membership has value to the parent.
- Go above and beyond their expectations. Deliver an experience that they want to talk about with their friends. Make their time at your facility personal. Use their names. Recognize them for their personal accomplishments.
Sometimes even the most dedicated members will have motivational challenges. This usually begins to show as a reduction in their attendance. It is important to take notice and reach out to these members. If they only missed a few class, maybe a hand crafted postcard indicating that they have been missed is sufficient. It they have been missing in action for 2 weeks or longer, take the time and call them (or their parents). Many times this lack of motivation is reversible. Listen to the reason and if possible offer “re-motivation” assistance (e.g. a private lesson…etc).
Know Your Numbers
It is imperative to know your Monthly Enrollment Count, Monthly Attrition Rate, Current Member Count and Potential Member Count. If your business plan requires 400 members, but your Monthly Enrollment Count and Monthly Attrition Rate only provide a Potential Member Count of 300, then you are doomed to fail. Knowing your numbers allows you to pull levers and monitor the result. This monitoring is the feedback you need to adjust your business plan / systems.
Member Owl automatically tracks these number for you. Here is an example of these key performance indicators as shown in each location’s performance page:
These metrics allows you to make data-driven decisions that optimize your business. Of course these provide the member count dimension of your business performance. A business can be profitable (or unprofitable) with 1 member or a 1000. The financial numbers are also important and Member Owl tracks those for you also.
So what are your numbers?
If you have any questions, please feel free to contact us.