What Your Lifetime Member Value? How does it affect your business decisions?
The concept of lifetime customer value is an important factor in determining what your subscription prices are. It also affects how much you can spend acquiring new leads and members.
You will not be able to accurately determine your lifetime member value until your site has been up and running for some time, but using educated assumptions to work out a potential lifetime customer value can be a very beneficial part of your business plan.
What is lifetime value?
In simple terms each member’s lifetime value is the average profit they will generate for you during the time they are a member of your site.
Each of your members can create revenue for you in a number of ways: n nInitial subscription fee - this is how much you will earn right away from new members. This could be their first recurring payment, set up fees, or lifetime member fees.
Repeat subscription fees - these could be weekly, monthly or annual fees you charge your members to use your site.
Additional product and service purchases - these could be anything else or your own that you sell or recommend to your members. Maybe you have other membership sites in your network, ebooks you publish or wrote or software you developed or own the rights to. It could also be service related such as programming, writing, coaching, mentoring or seminars or any other service you offer.
Affiliate product purchases - these could be anything you recommend or have links to on your site that you are affiliated with. Meaning they are not your own products, you just send traffic to your affiliate link and earn a commission on the leads and/or sales.
AdSense or other contextual advertising links - these are just links on your site that you earn revenue on everytime they are clicked on by your members or visitors.
The more complex your site, the more factors there are to take into account. Some sites only use one method while others use a combo or even all of the above to generate revenue.
To calculate the lifetime value of a member you need to take the average initial subscription, plus the average revenue from further purchases (these include repeat subscriptions, purchases, click-throughs etc.), multiplied by the average number of repeat purchases in one time period (a month, a year etc.), multiplied by the average number of time periods a customer remains a member.
Here is a simple example:
Your members pay $50 for their one time subscription.
They spend on average $20 twice a month on purchasing further products etc.
Your average customer remains a member for 6 months.
Your lifetime member value = 50 + 20 x 2 x 6 = $290
Knowing your lifetime member value will steer your business decisionsnnKnowing how much your average customer is worth enables you to determine how much resource you can afford to put into attracting new members.
You can use the lifetime member value to create a budget for promoting and developing your site that ensures you aren’t spending more than you are making.
Keeping a database with detailed records of your members’ purchases will allow you to determine a more accurate lifetime member value over time.
This can help you to adjust your prices and strategies to maximize your profit without losing your customers.
You can monitor the effect that changes to your site have on your lifetime member value.
As subscription businesses, membership sites rely on recurring business. Once your membership site is fully functioning, about 75% of your sales will come from your current subscriber base, so you will want to give a great deal of thought to your rebilling strategies.
There are two main models to consider when determining your rebilling strategy:
1. Optional renewal
If you use optional renewal, your members will be notified that their membership is due to expire, and will be given the option to renew it.
If you use this method, you will want to make it as easy as possible for your members to renew, and send them at least two reminders.nnn2. Automatic renewalnnAutomatic renewal is also known as continuous service. If you choose to use this method, your members will receive a notification that a subscription payment has been debited from their account.
This has the obvious advantage over optional renewal in that your members do not have to make any effort to renew their membership. On the contrary, they have to make an effort not to renew it.
Don’t forget the power of loyalty.
A loyalty scheme will encourage your customers to maintain their membership. Recognizing and rewarding your members’ loyalty is a great way to keep them subscribing to your site. If you choose to follow a loyalty scheme, you can publish details on your site, and you can enable your members to track their progress through your scheme in the same way as they can access their personal details.
Other ways to encourage loyalty are to offer bonuses for your members only when they buy products you recommend.
Also using scheduled content so your members can only access your next week, month or year's content if they renew their subscription.
Remember, there are many factors that determine the lifetime value of your members. You'll need to look much further than just their initial membership fees.
These are just some ideas to help you determine the lifetime value of your members and we hope this helps you with your business.