The Membership Guys

Why Member Lifetime Value is More Important Than Churn Rate

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There are plenty of great things about the membership model – but member churn is not among them.

Churn – the name given to the loss of paying members and subscribers – is something that you typically do not have to deal with or even contemplate with most other types of business models.

And for some people, the mere concept of having to deal with churn is enough to put them off pursuing their membership idea.

However these people are taking the wrong approach, and focusing on entirely the wrong thing.

In this episode I dive deeper into misconceptions about churn, and talk about why ‘member lifetime value' is the only thing that ultimately matters.

Episode Summary:

  • Challenging is the notion that the existence of ‘churn' makes memberships a bad business model.
  • “If members leave after X months, I'd be better off doing Y” – really? Let's do the math…
  • Churn is merely a factor that determines what a member's LTV is and the timeline to achieve it.
  • How memberships give you a greater ability to affect LTV than selling courses, doing client work and so on.

Key Quotes:

“We have to ditch this ideal around churn rate, because it needs context; so if your mindset is, ‘My churn's bad, so why don't I just throw in the towel and sell a course instead?' It's all about context. You need to think about what that churn actually means in terms of the lifetime value of every sale that you get.”

“Everything has a churn rate, because everything has an end point…┬áChurn is merely a factor in determining what the overall lifetime value will be, and what the timeframe for hitting that total lifetime value is going to be.”

“If you're not getting sales, then it doesn't matter what your churn is. Your churn could be half a percent and you'd still be in negative growth, and that's the same for anything. If you're selling courses, and you don't get any sales, then the money dries up. If you're servicing clients, and you don't get any new contracts, the money dries up. The big difference with memberships is that there's a heck of a lot more cliff to walk back on if growth starts dipping into the negative.”

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