Recently, I was asked a seemingly simple question – how to go about calculating member renewal rates? This question at face value seems to be pretty straightforward, you figure out how many renewals you had out of the # of possible renewals, and there you have it – a renewal rate. The challenge lies in calculating this in a consistent manner so that you can compare renewal rates as a key performance indicator (KPI) based on an “As Of Date”. Like any good metric or KPI, you must first have a very clear definition of the way it is calculated, otherwise there will be room for interpretation in directions you didn’t intend. So, in the case of member renewal rates, one example of a definition might be:
“The membership renewal rate is calculated by dividing the number of members that renewed their membership during the specified time period, by the number of members that were eligible to renew during that time period.”
Building on this further, it is important to define any exceptions such as:
- The renewal rate (does/does not) include memberships that were initiated in the current year from trial offers
- The renewal rate (does/does not) include memberships that were in a grace-period during the subject time-period
With a clear definition in place, it is possible to build a reporting model to automate this calculation. In the case of renewal rates, there are some complexities in calculating the renewal rate based on an As Of Date. First, you have to determine if each given membership was “Active” at the As Of date. Clearly, a membership that expired in a period prior to the subject period is not one that should negatively affect the renewal rate. Additionally, a membership that commenced during the subject period should not be included in the calculation either – that is, if a new member signs up mid-year, that membership was not renewed during the year, even though it was active, and should therefore be excluded as its active status bears no indication of renewal performance yet.
So, to summarize the logic here: for each membership record, include in the renewal rate calculation only if:
- The membership is not in the first cycle (typically a year)
- The membership did not expire before the beginning of the time period being evaluated
- Any other exceptions as noted above, depending on business rules most appropriate for your organization
If your AMS doesn’t have a report that suits your particular needs out of the box you should be able to build this quite easily with a reporting tool or spreadsheet.