The Top 3 Metrics Every Membership-Based Business Must Monitor for Sustainable Growth
I have worked with membership-based businesses for over 15 years, on both the B2C and B2B sides, and one thing that makes the membership business model one of my favorites is the abundance of data that can help you make good decisions. However, out of all of the data, there are three key metrics that I believe are the most important to knowing if you are on the right track for growth and sustainability.
If you do not have these metrics setup yet for your business, I provide thorough descriptions and formulas for each below. If you already have these metrics setup in your business, in each metric’s section I drop some tips on how improve them.
The Top 3 Metrics Every Membership-Based Business Needs to Know
The three most important metrics a membership-based business needs to watch very closely are Retention Rate, Average Length of Stay, and Lifetime Value. Below are explanations of each metric, why they matter, how they are calculated, and how to improve it.
1. Retention Rate
What is it?
Your retention rate measures the percentage of members who remain active subscribers over a specific period (monthly, quarterly, or yearly).
The Retention Rate Formula:
Formula: ((E - N) ÷ S) x 100 = retention rate
E - Number of members at the end of the month
N - Number of new members gained in the month
S - Number of members at the start of the month
Why does it matter?
Retention rate reveals how satisfied members are with your service and how successful your efforts are in keeping members engaged. A high retention rate means you're delivering ongoing value; a low rate signals dissatisfaction or unmet expectations.
How to improve it:
Regular Feedback Loops: Constantly ask your members for feedback and act on it. Your members’ voices guide you towards enhancing their experiences.
Personalized Communication: Make members feel seen by personalizing interactions, such as tailored emails or targeted content.
Engaging Community Events: Host regular events, webinars, or Q&A sessions to continually reinforce the value of membership.
2. Average Length of Stay
What is it?
Average length of stay calculates the typical duration a member remains subscribed to your membership.
The Average Length of Stay Formula:
Formula: 1 ÷ (1 - Retention in Decimal Form) = Average Length of Stay
Why does it matter?
This metric highlights exactly when your members tend to disengage or drop off. It helps pinpoint critical moments in the member journey that may need improvement or additional nurturing.
How to improve it:
Identify Drop-off Points: Use analytics to discover when and why members typically leave, then proactively address these issues.
Enhance Onboarding: Create a robust onboarding process to immediately immerse new members in your community and value offering.
Continuous Value Creation: Regularly update and enhance your offerings, ensuring members always have fresh reasons to stay engaged and subscribed.
3. Lifetime Value (LTV)
What is it?
Lifetime Value measures the total revenue generated by an average member throughout the entirety of their membership.
The Lifetime Value Formula:
Formula: Average Length of Stay x Average Monthly Price = LTV
Note: If you have other offers, your LTV might be higher. This is a simple way to calculate it for your membership only.
Why does it matter?
LTV is the golden metric that predicts future revenue, enabling you to make informed decisions about investments in marketing, acquisition, and retention strategies. Understanding LTV means understanding how much you can spend on acquiring and retaining each member.
How to improve it:
Increase Engagement: Offer highly engaging, valuable content consistently to keep members subscribed longer.
Upsell Strategically: Develop and promote premium offerings, special events, or exclusive content to maximize revenue opportunities from loyal members.
Reward Loyalty: Create incentives for longer-term memberships or milestones to increase the perceived value and enhance commitment.
Bringing It All Together
Your membership business thrives or declines based on how well you track and respond to these critical metrics. Keeping a sharp eye on your Retention Rate, Average Length of Stay, and Lifetime Value will give you deep insights into what's working and what isn’t.
At the end of the day, these metrics aren't just numbers, they're reflections of the real people who form your community. Treat these insights as opportunities to elevate member experiences, foster deeper relationships, and sustainably grow your business.
