00:00 – Hello my friends! Jamie here with ZenplicityNow.com. And I heard a question the other day on social media that I thought was first of all a really good question. And second of all, it made me kind of want to do a little bit of research for myself and see what the answer was.
00:23 – And now that I know the answer, I want to share it with you. So the question was: if you have a membership site or a membership community or a subscription community, what is more important? Is it more important to acquire new members? Or is it important to keep the members that you have now? Industry standard kind of sets the benchmark at 5% to 7% annual churn for subscription based businesses. Now again, depending on your industry and a whole bunch of other factors, your number might be a little bit different, but for the sake of the argument here, I’m going to stick with 10%.
01:08 – If you’re doing 10% or less churn, then you’re, you know, doing okay with room for improvement. But let’s be a little bit conservative there. Now research also shows us that reducing churn by 5%, we can see an increase in profits of 25% to 95%. So that’s a pretty big deal. If we keep the customers that we have, then we have the opportunity to see really good growth potential for our subscriptions.
01:43 – Now research also shows us that it is 6-7 times more expensive to gain a new customer than it is to keep the customers that we have. So we have to take all of this into account when we’re trying to answer the question. Is it more important if I have a subscription based or membership business to be focusing on customer acquisition or customer retention? So let’s dive into some numbers and I think you’ll be surprised and delighted or shocked about what you see.
02:18 – All right, so let’s look at an example here. I am going to use the same numbers for every one of our scenarios. So what I’m, what I’m looking at is, let’s say we have a membership site with 500 members. We have a 10% churn rate. Again, just to be super duper conservative, we have a $50 per month membership and we average about 20 new members each month. So at the top you can see what our one, two, three years are gonna look like. We’re going to eventually by year three see a pretty substantial decrease in our revenue.
02:57 – Now let’s say that we leave everything the same and we only focus on increasing acquisition and we find that by doing that, our average goes up to 40 members each month. So we’re bringing in 40 new members instead of 20 new members, we still have the same churn rate, we’re still at the same price point. Everything else stays the same. That alone would show us an increase of substantial numbers throughout the years 1-3. But we’re still seeing a decline from year one to year three of about $35,000 over the next three years. That’s a total increase of $262,655, but we’re still going to end up with lower years in year three than we did in year one. Just by making that one change.
03:48 – Now let’s say, I am really going to ramp up my Facebook ads, then I’m really going to ramp up customer acquisition. I really want to get more new members in. So again, everything else stays the same. We increase acquisition to 60 new members each month. That, as you could probably guess clearly helps our revenue numbers, between years one to three, giving us an increase of just over half a million dollars in revenue over that timeframe. So, for comparison, yeah, absolutely. Bringing 60 new members a month in verses 20 and still having that same churn rate will definitely help us increase our revenue over the years. And that might be, that might be something we want to think about.
04:38 – Now let’s look at the other side. Let’s say we have 500 new members, 10% churn rate, $50 a month membership, and we averaged 20 members per month. Now let’s say that we really focus on member engagement, figuring out ways that we can create better relationships with our members, giving them opportunities and incentives to come back to our membership site and to really engage over there. And all of those efforts give us a churn reduction of 1%. So we’re going from 10% to 9% no change in how many new members we see each month. This is going to give us an increase over three years of $42,000, right? So we’re gonna be at year one and year two and year three higher. We’re going to see an increase in revenue, all things considered over that time, but it’s definitely not like astronomical numbers or anything like that.
05:44 – Now let’s see what happens when we try to reduce that turn by 1%. And we increased the acquisition to 40 members per month. So we’ve got dual strategies here. One that satisfies our need to grow and another that satisfies our needs to keep our members longer so that we can so that we can increase revenue that way. When we combine those two strategies of customer acquisition and churn reduction, we see an increase of $323,000 over the course of three years.
06:24 – So this clearly, this looks pretty good, right? We would see just in your one, $296,000 versus if we left everything the same $227,000. And we see slight decreases every year. But overall, this, um, this seems pretty good. I’d much rather be making an additional $323,000 versus an increase of only $40,000 if I just focused on churn.
06:54 – Now let’s say we take that one step further and we leave everything the same. We have 500 members to start with, 10% turn rate, $50 a month membership. And we decide that we’re gonna put all of our efforts into reducing that churn, creating better experiences for our members, doing all of those things within our membership site for our current members. But we’re still going to ramp up Facebook ads or whatever type of strategy that you want to use in your business.
07:25 – Acquisition goes up from 20 members to 60 members each month that, my friends, over the next three years will give us an increase of $603,000. Clearly from year one, if we keep that 20 member average going to 60 members, we are seeing really exponential growth there.
07:51 – So to answer the question which is more important, do we need to be focusing on bringing new members in or do we need to be focusing on keeping the members that we have? I’m afraid my friends, it is a trick question because both of them, both of those strategies are equally important. If we want to see growth, which as you’ll notice here from year one to year three, we are seeing growth from $336,000 to $390,000.
08:20 – So if you want to keep growing your membership and you want to continue to hit those benchmarks in your business, you must focus on a combined strategy of keeping the members that you have happy and engaged and wanting to be active and participate as well as creating new opportunities to increase the number of members that you are seeing join you each month.
08:48 – I hope this gives a little bit more insight into why these metrics are important and why you should be tracking these things for your membership site because you are able to basically predict the future here. You can run these numbers, you can do some math and figure out, “okay, if I pull this lever in my business, what is that going to do to my overall revenue and what does that going to a day to my revenue? Over time?”
09:13 – It’s really important not to just focus on what happens in the short term but also over a long term. If you are planning a longterm growth strategy maybe to eventually sell or get acquired by somebody else, whatever the case may be. And you may not even be thinking about that right now. You may be like, “Jamie, I have like, 30 members in my membership community. I am just getting started.”
09:40 – But here’s the thing, these numbers are still important to you so that again, you can still make the same predictions. You can still have the clarity and the certainty around what your numbers are saying in order to make those decisions for yourself.
09:56 – So don’t be discouraged if you don’t have 500 members. The point here is it is extremely important to be tracking and reporting and digesting what those numbers mean for your business.
10:09 – Do you have any questions about this? Please don’t hesitate to reach out to me. I always love getting super nerdy and talking about this kind of stuff with you, and I would love to help you create a more sustainable business through marketing membership and metrics. That’s all for today. We’ll talk to you later.