Lesson 4: Ecommerce memberships masterclass with Appstle
Every ecommerce business requires many different strategies for it to be successful. And these strategies need consistent attention. They’re not a one-time activity.
Ecommerce memberships strategy is no different. It should not be treated as a one-off effort. To make your ecommerce memberships on Shopify reap the maximum benefits for your business, you’d have to keep a watch on the performance of its different aspects.
From the number of members to the amount earned from membership fees to the customer lifetime value, your Shopify memberships can generate many different metrics.
In this lesson, we’ll learn about the following metrics:
- The number of new members
- The number of cancellations
- The average duration/ lifetime of members
- The average amount spent by members
- The average number of purchases
- Perks usage
- Renewal rate
- Customer lifetime value
- Monthly recurring revenue
- Annual recurring revenue
- Amount spent on perks
- Amount spent on perks vs the profit made from purchases made using the perks
Ecommerce metrics to measure & assess the success of your memberships program
The number of new members
The more new members you have, the more successful your program would be. Obviously, you’d want the number of new members to shoot up as soon as you launch your membership program. But that would be too good to be true.
The number of new members would keep varying at different times. But by measuring this metric, you can work towards boosting membership downtimes.
Here’s what you can do:
- Track the number of new members – weekly, monthly, and yearly
- Make a note of patterns – when new sign-ups are less or more
- Boost marketing activities to increase memberships during low periods
How to calculate new member rate: Count the number of members at the start of a predefined period (say, six months). Count the number of members at the end of six months. Subtract the number counted at the beginning from the number at the end of six months.
No. of members at the end of a period – No. of members at the start of that period / 100 = new member rate.
The number of cancellations
Cancellations can ruin your membership program. It’s obvious, when people opt-out of your membership, it’s not a good sign. And it’s time you should be making some changes to retain these members.
The truth is, if you don’t catch cancellations in time, you’ll be spending a lot more time, and resources in bringing those members back or looking for new members to sign up.
Tracking cancellations is one of the most basic ecommerce metrics and it can help in many ways:
- Your chances of retaining members are higher if you track cancellations at the right time
- You can follow up with members to understand the reasons they canceled and try to bring them back
- You can notice patterns of opt-outs. For example, if members are opting out during a particular season or time of the year
- Based on the patterns, you could run personalized marketing campaigns to reduce cancellations
- You could offer personalized membership perks to improve retention
How to calculate opt-out rate: The number of members at the beginning of a predefined period – the number of members at the end of the predefined period = opt-out rate.
The average duration/life of members
Membership periods differ from brand to brand. Some memberships may be lifetime, others may be on yearly renewal basis.
Similarly, the duration for which members retain your Shopify membership may vary. Some members might cancel it within a few months, or before a year. Others might renew their memberships year-after-year.
It’s important to know the average duration for which people remain members. Here’s how this data can help:
- You can get insights into the performance of your membership plan
- You can identify churn patterns
- It can help you in the future decision-making for your membership plan
How to calculate the average duration of members: count the number of days or months or years that a customer continues their membership.
The average amount spent by members
Another key ecommerce metric is the average amount spent by members per purchase. Knowing this gives you a quick peek into the value of your members. When calculated regularly for predefined periods, say for example, every year, it can indicate an increase or decrease in the amount spent.
If the amount increases, it’s a good sign for your business. You could give a push to increase the amount through personalized, targeted marketing campaigns.
If the amount decreases, it’s obviously a cause for worry because it would directly affect your business revenue and growth. So, when there’s a decrease, you could run campaigns such as extra discounts, etc., to entice members to make more purchases.
How to calculate the average amount spend by members: the total amount spent by the member divided by (/) the number of months = average amount spent by members.
The average number of purchases
The average number of purchases is the average number of transactions per member during a predefined period. This can help you better understand members’ purchase patterns and behavior.
You can calculate the average number of purchases during different periods, for example, in a week, a month, a year, etc.
The average number of purchases can be calculated by dividing the number of purchases made in a period by the number of customers.
For example, say you receive 1000 orders in a month from 800 customers. This means that most of your members made purchases once or twice.
How to calculate the average number of purchases: Number of orders on your site / number of customers who made purchases
You would have many different types of perks in your membership plans. For example, you might have free shipping, discounts, store credits, gifts, etc. But not all members might be utilizing all the perks.
Tracking usage of perks – which perks are used more and which ones are used less, or not used at all – can give you a deeper picture of how members are using their memberships.
So, how does this data about perks help?
- It helps identify the most-used perks. You must definitely offer more of these perks as your members are enjoying the benefit
- For perks that are used less, you could either choose to remove them, or tweak them to make them better so that members find those perks beneficial
- You could even measure perks usage for different segments of members. For example, perks used by new members, low-value members, high-value members, etc. This can help you get a better representation of member engagement as well as develop a personalized marketing plan for different member segments.
How to calculate: Add the number of customers who have used each of the perks
Memberships that have a periodic renewal date – for example, a year, six months, three months, etc. – have to be renewed once the membership expires.
However, all members might not renew their membership. Some might miss out the date, and forget renewing, some might not be sure if they want to continue their membership, or may not find the perks exciting anymore and decide not to renew.
The renewal rate is one of the most important measures to assess the success of your membership plans.
Why is it important to measure the renewal rate?
- Renewal rate can give you an indication of your Shopify store’s membership program’s growth prospects. If the rate is poor, you should put in efforts to improve renewals and evaluate your memberships strategy.
- Knowing the renewal rate provides stability and predictability.
- Higher renewal rates year-after-year would indicate the brand is more likely to achieve its long-term profit goals.
How to calculate renewal rate: Total number of memberships renewed in a given period / total number of subscriptions due for renewal in that period.
Customer lifetime value
Another key measure for memberships is customer lifetime value (CLV). It helps to understand the total revenue potential from each of your customers.
CLV is a measure of the average revenue you generate from a customer throughout their relationship with your brand. You can compare CLV with the customer acquisition cost to assess your profitability and the potential for your business to grow in the long term.
How does CLV help?
- It can help you increase revenue over time
- It can help you identify challenges so you can improve customer loyalty and retention
- You can reduce customer acquisition cost by increase CLV
How to calculate CLV: The average recurring revenue from a customer / duration of the customers’ membership.
Monthly recurring revenue
Monthly recurring revenue is the revenue that the brand makes through memberships month on month. It is the dependable or predictable revenue the company makes. The amount that members pay as fee for a month, is the monthly recurring revenue.
How does knowing this help?
- It gives real-time insight into the financial performance of your membership plans
- It is the most accurate indicator of your membership plan’s health
- It helps you make future decisions
How to calculate monthly recurring revenue: The number of customers X the monthly fee they pay.
Annual recurring revenue
Annual recurring revenue is somewhat similar to monthly recurring revenue. It is the SUM total of revenue earned on a yearly basis. The amount that members pay as annual membership is the annual recurring revenue.
This amount should ideally increase year after year because you should increase the number of your store’s members every year. However, if there is a decrease in this amount, it indicates poor performance of your membership plan.
Here’s how calculating the annual recurring revenue can help you:
- It helps you determine good or poor performance of your membership plan year after year
- It helps you compare the health of your membership plan with the previous years
- You can make membership fee changes based on the annual recurring revenue if you want to increase your income from memberships
How to calculate annual recurring revenue: The number of customers X the yearly fee they pay.
Amount spent on perks
You would be offering different types of perks for your membership plans. Even though some perks may not cost you anything or seem like it costs you nothing, you might end up spending a lot on those perks.
For example, when you offer free shipping, it doesn’t cost the customer anything, but it is a cost for you. Similarly, free gifts, discounts, etc., also cost money and resources.
Moreover, there might be other perks that would be tough to quantify in terms of what they cost. For example, first access to members only. You may not be spending anything on this perk, but you might be losing business by not allowing access to your regular customers.
The amount of profits you would make, depends on how you spend the least amount and yet offer the best perks. And that is why, you have to calculate the amount you spend on perks.
Calculating the amount you spend on perks helps:
- Gain insights into which perks are worth and a valuable spend
- You can iterate and change perks if the spends are more than the value the perks add
How to calculate amount spent on perks: Add all the expenses incurred on perks in a specific period of time
Amount spent on perks vs profits made on the purchases where customers avail the perks
Some perks that you offer to members can be used by them to make more purchases. For example, reward points or vouchers or discounts.
But you should calculate the amount you spend on offering these perks against the profits that those perks bring you. This is a key part of ecommerce analytics tracking.
By calculating this, you can:
- Get an understanding of whether the perks are making profits for you or losses
- Get insights into which perks are being used
- Tweak the perks to earn more profits
- Make perks more valuable to members
How to calculate: Calculate the amount spent for offering perks and calculate the profits made of the purchases using those perks. If the amount spent is more than the profits made, it’s a loss for you. If it’s the other way around, it’s profit.
Measuring all kinds of metrics for memberships is a must. To make the process easy, you’d require a smart app. When you set up memberships using Appstle, you can easily access all the details on its comprehensive dashboard of Shopify analytics.
Appstle also offers consultation to optimize membership programs for better business success. Appstle builds end-to-end membership solutions that help businesses increase customer loyalty and profitably scale business.
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