A member is worth what they leave you each month, after their direct costs, times the number of months they stay. Once you know that number, you can decide how much you're willing to spend to sign up a new member and still come out ahead.
What a member is worth
Start with what the average member pays each month. Subtract the costs that come with each member, like card fees, included labs and supplies. That's what each member leaves toward rent, staff and your pay.
Then estimate how long members stay. If you know your monthly churn, divide 1 by it. At 2.5% monthly churn, the average member stays about 40 months.
In a made-up example, the average member pays $80 and costs $10 a month to serve, so each one leaves $70. Over 40 months, that's $2,800.
What it costs to get one
Add up what you spent last quarter to bring in members: ads, events, printed materials, referral gifts and any paid help. Divide by the new members who signed up in the same quarter.
In the same made-up example, you spent $1,500 and signed up 10 members. That's $150 per new member.
Compare the two
A member worth $2,800 who cost $150 to sign up is a good trade. A member worth $2,800 who cost $1,200 might still work, but it takes a lot longer for that spending to pay back, and your cash has to carry it until then.
I'd also look at payback time. At $70 a month, a $150 member pays back in a little over 2 months. A $1,200 member takes about 17 months.
Be careful with a young practice
In your first year, you don't know how long members stay yet. Use a short, cautious guess, like 24 months, until you have real history. An optimistic number can talk you into spending more than the practice can carry.
Where the numbers come from
Member counts come from your platform. Revenue, direct costs and marketing spend come from your books. That only works if marketing has its own expense lines and member costs aren't buried in general supplies. This post covers tracking marketing spend.
Count the members who keep you
Some members are worth more than the average. Families who stay for years, members on employer contracts and members who refer friends all bring in more than one membership's worth. I'd look at the average first, then check whether a group like that pulls it up or down. If a channel brings in members who leave fast, its cost per member looks cheap but the trade isn't.
What I'd do this week
- Work out what the average member leaves you each month after direct costs.
- Estimate how long members stay from your churn, or use a cautious guess.
- Total last quarter's marketing spend and divide by new members.
- Compare the two and check the payback time.
Common questions
Should I use revenue or profit per member?
Use what's left after the direct costs of each member. Using full revenue makes a member look worth more than they are.
Do referrals cost nothing?
They often cost less, but count any referral gifts or discounts. Even free channels take your time.
How often should I update these numbers?
Every quarter is enough for most practices. Update sooner after a price change or a new marketing push.
Want numbers you can base spending decisions on?
We reconcile every account every month and send your P&L and Balance Sheet by the 15th, so decisions like this start from real numbers. If that's what you need, apply to work with us.