Calculating the Cost to Serve a Member

One of the questions that I am frequently asked is how to calculate membership servicing costs. It is an important question to building and sustaining a success membership marketing program. But how you answer the question can have profound implications on your membership program.<br /> Here is a real life story on how NOT to calculate the cost to...

One of the questions that I am frequently asked is how to calculate membership servicing costs.  It is an important question to building and sustaining a success membership marketing program.  But how you answer the question can have profound implications on your membership program.

Here is a real life story on how NOT to calculate the cost to serve a member.  One of my clients presented the following analysis to his staff.  He took the entire budget for his organization and divided it by the number of members and determined that the cost to service a member who annually paid $79 in dues was $300 ($3,000,000/10,000 members).

Shocked and with tongue in cheek, I told him that the best solution for the organization was to email all of the members and tell them not to renew – they would save $221 for each member who did not return.  Of course they would have to survive without the $800,000 in dues revenue and some portion of the non-dues, advertising, and exhibitor revenue dependent on members.

But in all seriousness, when an organization assigns too much cost to serving a member, the calculation can kill a membership program.  Why would an organization spend even the smallest amount of money on recruiting or renewing a member when the cost to serve approached the annual dues rate?

So what is the best way to determine the cost to serve a member?  I believe that the optimal method is to base the analysis on incremental servicing cost.

The incremental cost is simply made up of the variable costs that the association would incur to serve an estimated number of additional members.  These variable costs might be as simple as printing and mailing additional magazines and renewal notices.  You can determine these incremental costs by working with suppliers to get an estimate of what the additional cost would be if, for example, you printed and mailed and additional 1,000 magazines and sent out additional renewal notices to 1,000 more members and then divided these costs by that number of members.  A typical association might find these costs are less than $20 per member and not the $300 per member noted earlier.

Clearly over time for a rapidly growing association the incremental cost method poses some problems.  At some point, additional staff will be required to serve members and office space might need to be expanded.  But I have witnessed clients growing membership by 50 percent and not adding staff or additional space.

The other approach to calculating servicing costs is to try to define the “real” costs to serve a member.  The challenge is that what those real costs are is highly subjective.  Should the servicing costs include some portion of the CEO’s salary?  What about the editorial staff that works on publishing the magazine for members?  Should only the office space occupied by the membership department be assigned to the cost or the space used by others?  Are marketing communications sent to members a cost and if so does the membership revenue budget get credited with the non-dues purchases made by members?  How does the cost of insurance, software, and staff travel get assigned?

All these costs in theory can be assessed and monitored over time.  However, does this really provide a clearer picture or simply reflect someone’s arbitrary judgment call?

The bottom line is that for most associations, serving members is the reason that the organization exists.  And in addition to dues revenue, most product purchases, registrations, exhibit and advertising revenue are driven by the existence of members.  So understanding that there are costs to provide services to members needs to factor into any economic calculation, but following a simple incremental cost calculation will provide the fundamental information needed at a considerable savings of time and debate.



Source: membershipmarketing.blogspot.co.il