Any business that has a “membership” business model is made up of two elements.
1. Member Acquisition
2. Retaining that member
The length of time you retain a member is often called customer or member lifetime value.
That’s the average length of time that a member stays and is one of the most important metrics when it comes to business success.
On the customer acquisition side, when you’re a new business and there’s not a lot of competition it’s typically easy and cheap to acquire new members.
However, as your membership grows, and you reach two thousand members and competition starts to grow in your market it can slowly become more difficult to acquire new members.
The reason for this is because you’ve already taken a lot of the “hot” prospective members off the table.
In any market, some people are actively in buying mode. They’re looking for a gym membership, some are open to the idea.
These people represent your “hot prospects”.
Once we build up our membership base, we’ve taken a lot of those “hot” prospective members from our pool of opportunities.
Once we’ve taken those away, there are fewer quality prospects available in our pool of total prospects.
In addition to that, the competition may also be increasing as a market matures.
This means that you must spend a lot more money to continue to acquire new members at the same rate.
We can think of customer acquisition it in terms of a tap, that is turned on to a certain pressure (a certain volume of new members each month).
If that tap flows into a bucket (your membership) and that bucket has a large hole (your attrition) if your flow (customer acquisition) dries up, and you continue to leak the same volume each month from your bucket (attrition) it will result in losing more members than acquired.
If your flow (customer acquisition) dries up, and you continue to leak the same volume each month from your bucket (attrition) it will result in losing more members than acquired.
Soon your bucket will be running out of water (members).
If you have high attrition, and you’re losing a lot more members, revenue is going to be sinking or reducing as each month goes by. If you’re not able to balance the acquisition with your churn, you’re on a slope to going out of business.
There is only so long that you can ignore a retention problem. Sooner or later it’s going to catch up with you.
That’s why it’s very important to have strong retention processes and why strong acquisition is never an excuse for poor retention.
