The terms retention and renewal rate are often used synonymously when assessing how effective an association is at keeping members. Recently, in working on a data analytics project with one of our association clients, I was reminded that they are in fact different metrics. I thought this might be of interest and worth a share.
This metric can be calculated if you know how many members you had at the beginning of a period, and many you had at the end of a period.
Retention Rate = End Count / Start Count
If you had 10,000 members at the beginning of a period and 9,000 at the end of a period, then your retention rate for that period is 90%. Easy, right?
Not so fast, what about new members?
New members acquired during a given period should not be included in the retention rate calculation because they were not members at the beginning of the period. Including them artificially inflates retention rate.
Excluding new members acquired during the period, our revised retention rate calculation becomes:
Retention Rate = (End Count – New Members) / Start Count
Renewal rate introduces the concept of eligibility. How many members are eligible to renew when it is time to send out renewal notices? If members renew annually based on the anniversary of their join date, and assuming renewal notices are sent monthly, then in any given month most members are not eligible to renew. If dues are processed annually on a calendar basis, and the association provides a multi-year membership option, then members who are not in the last year of their term are not eligible to renew. Excluding ineligible members from the calculation is important to avoid artificially deflating the metric. Once a member renews for another term, they are considered a conversion for that batch of renewals.
Renewal Rate = Conversions / Eligible Members
What do you think? Are there variations to these metrics that your association uses to measure member retention?
Extra Credit: When are renewal rate and retention rate the same?
Answer in next post: Metrics Derived from Renewal Rate