Ep 237: You Must Know These Numbers to Scale Your Business

Sep 1

You Must Know These Numbers to Scale your Business

If you've followed me for any amount of time, you know I'm a bit of a nerd when it comes to data and metrics.

They're important.

Whether you have a membership or not, these numbers matter because your business depends on referrals, repeat customers, and people buying your next offer.

How to Calculate Your Membership Retention Rate

First question.

Do you know your retention rate?

If the answer is no, that's okay. But you should be able to calculate it on the back of a napkin.

Here's the formula:

Retention Rate = (End of Month Members − New Members) ÷ Start of Month Members × 100

For example:

End of month members: 550
New members: 42
Start of month members: 670

(550 − 42) ÷ 670 × 100 = 76% retention

That also means your churn rate is 24%.

Churn is simply the opposite of retention.

Why Retention Matters More Than Acquisition

If your membership isn't growing, you have two options.

Increase acquisition.
Increase retention.

Most people focus on getting more members.

But it costs far less to keep a customer than it does to acquire a new one.

That's why retention is one of the fastest ways to grow recurring revenue.

How to Calculate Customer Acquisition Cost (CAC)

Customer Acquisition Cost tells you how much it costs to get one new customer.

Add together everything you spend on marketing and sales, then divide it by the number of new customers you gained.

For example:

Marketing spend: $5,000
New members: 50

$5,000 ÷ 50 = $100 CAC

If you're spending more to acquire a customer than your business earns from that customer, your business won't scale.

How to Calculate Customer Lifetime Value (LTV)

Now let's look at Lifetime Value.

For memberships, retention drives this number.

If your retention rate is 90%, your churn rate is 10%.

To estimate how long members stay, use this formula:

Average Length of Stay = 1 ÷ Monthly Churn Rate

1 ÷ 0.10 = 10 months

If your membership is $40 per month, then:

$40 × 10 months = $400 Lifetime Value

Now compare that to your Customer Acquisition Cost.

CAC: $100
LTV: $400

That's a 4:1 LTV to CAC ratio.

For every $100 you spend to acquire a member, you make $400 over that member's lifetime.

The Easiest Way to Increase Lifetime Value

The easiest way to increase Lifetime Value isn't finding more members.

It's decreasing churn.

Even a small improvement in retention increases the value of every member and gives you more recurring revenue to reinvest in growth.

That's why retention matters so much.

The Membership Metrics Every Owner Should Track

Every membership owner should know these five numbers:

Retention Rate
Churn Rate
Customer Acquisition Cost (CAC)
Customer Lifetime Value (LTV)
LTV to CAC Ratio

Marketing gets people in the door.

Retention keeps them there.

If you want to build a membership that grows, start by tracking these numbers every month.

Ready to improve your retention?

Learn how to work with Shana to build retention systems that help you keep more members, longer at shanalynn.com.

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Shana Lynn