The Membership Guys

Why Member Lifetime Value is More Important Than Churn Rate

Play Podcast Episode Subscribe on iTunes Download Transcript

Are you worried about the rate at which members are leaving your membership?

When you receive cancellations from people who've only been in your community for a few months, it can feel disheartening… 

And sometimes you're left scratching your head asking yourself…

“What's the point of running a membership if my members only stay for a few months”… 

This thought process may have even led you to consider giving up your membership all together and exploring other business models…

Like selling online courses…

Or going back to one-on-one client work…

If this is something you're going through right now then I have some news for you…

Cancellations are a natural part of the member life cycle

And something we all experience…

The fact that people sign up to your membership and don’t stay for life doesn't make the membership model a bad one…

So if you're currently finding yourself questioning the validity of your membership…

Or the model as a whole because of churn…

Here are some thoughts that may help you see cancellations from a new perspective…

Is there an industry average churn rate?

The short answer is no…

Quite often you'll hear people saying that the average person will stay subscribed to a membership for three months…

That's simply not true…

This guy knows it's not true…

But if you really had to pin it down and state an ‘average'...

It’s probably closer to around eight or nine months for a lot of memberships.

So let’s run with that and say we’re shooting for a 10% churn rate every month… 

Say you’ve got a $50 membership and a 10% churn rate…

This means 10% of your members leave every month (not including any new ones who you replace them with)...

And works out as every member staying with you for an average of 10 months…

Each of those members is worth ten months multiplied by $50 a month…

So each member is worth $500 over the time of their membership.

We call this customer lifetime value.

Let’s take another example…

Say your membership is priced at $25 a month, and you have a 5% churn rate which is pretty good…

This means every new person will stay on average for 20 months…

Multiply that $25 by 20, and you get $500. 

The point I’m making is that churn rate in isolation is not a particularly informative metric…

It’s one factor in a much bigger picture.

A churn rate alone needs way more context to be understood…

So, if you’re basing your next decision on your churn rate and nothing else…

Please think again!

What really matters is customer lifetime value. 

Memberships vs. other business models

This discussion usually comes up when someone is comparing memberships to some other type of business model…

It could be online courses, digital products, or one-on-one sessions. 

You might look at high-price online courses going for $2,000 these days and wonder why you ever bothered with a membership…. 

But again, context is important.

Those $2,000 courses probably won’t get nearly as many sales as a membership for $50 a month would. 

Another way to look at it is this…

A 10% churn rate just means that ten months after that initial sale, you’re no longer getting money from them…

With a course, all it takes is one instant transaction, and then you get no more money from them. 

The end result is the same…

It’s just the timeframe that’s different. 

Why memberships have more opportunities to increase lifetime value 

The good thing about memberships is you have far more levers to pull to try and increase that lifetime value…

With a standalone course, there’s only one lever…

The sales lever.

The only ways to increase the lifetime value of a course are to upsell, sell something else, or put the price up.

Of course you can do that with memberships too…

But there are also plenty of ways to improve retention to keep people around for longer.

This is not the best way to make your members want to stick around…

And doing this by just one extra month can make all the difference…

That’s a 10% improvement, so an extra month of revenue. 

You can’t do that with a course. 

Should you stick with a membership?

It's important to realize that whatever model you go with, whatever type of business you run…

It all comes down to customer lifetime value.

So, if churn rate is turning you away from the membership world…

And you’re thinking of selling courses instead…

Know that churn is merely a factor in determining what the customer lifetime value will be…

Beyond that, the question of whether you should create an online course or a membership comes down to other factors.

Which do you enjoy more?

Which one facilitates the type of lifestyle you want?

What model is better suited to your market or your audience?

Which best fits with your skillset?

These are the questions you should ask yourself.

If the answers lead you towards courses being a better model than memberships…

Then so be it…

But remember that memberships are not inherently better or worse than courses because of churn rates…

You just need to look at it in the wider context of your business.

Thank You For Listening

We really appreciate you chosing to listen to us and for supporting the podcast. If you enjoyed today's show, please share it using the social media buttons on this page.

We would also be eternally grateful if you would consider taking a minute or two to leave an honest review and rating for the show in iTunes. They're extremely helpful when it comes to reaching our audience and we read each and every one personally!

Finally, don't forget to subscribe to the podcast in iTunes to make sure that you never miss an episode

Top