How to Calculate Retention in Your Club
Webster’s defines retention (ri-tent-shun) as, the act of keeping in your possession.
Retention certainly receives a tremendous amount of discussion and press in our industry, rightfully so because of the key role it has in the financial success of every club.
• Do you know what your club’s retention numbers are?
• Do you know how to accurately calculate retention?
• Do you know how to measure the financial impact of retention?
Let’s start with some retention statistic fundamentals:
• It is referred to in a percentage format and tells you what portion of your members stayed members in the past year.
• To calculate your retention percentage accurately you should be using 12 concurrent months of data. However, this does not need to be January to December, it can be calculated from June to May, July to June, etc.
• The median membership retention for clubs is 66 percent (as reported in IHRSA’s, 2003 Profiles of Success). This means that for every 100 members, 66 members stay and 44 of them cancel in a 12-month period.
The most common misconception is that the retention percentage is derived by adding total cancellations in a year and dividing by the year end membership total. But this does not take many variables into consideration. The following steps outline the generally accepted method of accurately calculating your retention:
1. Make a 12-month chart and record in each month the following:
a. Beginning monthly membership for each of the last 12 months. This is calculated as follows: Previous months beginning membership Plus Number of sales previous month and number of reinstated (or unfrozen) memberships Minus Number of cancelled memberships and number of frozen memberships.
b. Total cancelled memberships for the last 12 months.
2. Total the beginning monthly memberships column over the last 12 months, then divide by 12 to derive an average beginning monthly membership.
3. Total the cancelled memberships for the last 12 months Divided by Average beginning monthly membership Equals Annual attrition, to convert that to retention take one minus attrition. Sample club retention calculation:
Total cancelled members (345) / Average beginning membership (1022) = Attrition of .3375 or 33.75 percent.
The retention percentage is 1 – .3375 = .6625 or 66.25 percent.
Your retention percentage is an important management tool and should be measured monthly on a rolling 12-month basis. Why is this important?
• What gets measured is more likely to be acted upon.
• Your retention numbers are an excellent indicator of your operational success and can validate or direct you to areas that need more attention.
• It can help you to develop future operational strategies.
• You can better track trends in your club membership over time.
Finally, and this is extremely important, knowing your retention numbers will enable you to budget, justify and then evaluate the cost of your retention improvement initiatives.
Take for example the 345 annual cancellations listed. Let’s say you have a program that you believe would result in retaining or saving three members per month (36 members annually) but would cost $5,000 in additional supplies and payroll to run annually, it is a simple process to determine if the increased expense would be a worthwhile investment:
Multiply the number of members you project to save (36) by the individual dues revenue of each member (let’s say $50) and multiply that by 12 months: (36 Members x $50 Dues) x 12 Months = $21,600 in revenue.
Many clubs prefer to take it one step further and also take into account the revenue per member generated from ancillary services (personal training, massage, pro shop, etc.) the formula would be: [(36 Members x ($50 Dues + $10 Non Dues)] x 12 Months = $25,920 in revenue.
For simplicity, we used data from a relatively small club, and yet the increased revenue generated from saving just a few members per month demonstrate that a big impact will be made on revenue and, ultimately, net profit. The seemingly large $5,000 investment would yield $25,920 in additional revenue – a worthwhile investment in any industry.
Investing in retention makes good business sense. However, knowing your numbers is the first step in determining what action to take and is a key indicator on the success of actions taken.
Richard Ekstrom is the President of Retention Management. He can be contacted at 800.951.8048, or by email email@example.com.