We’ve talked about the benefits of running a membership site, but how do you actually know if it’s all worth it? Measurements matter, and assessing the return on your investment (or ROI) is a good place to start if you want to get a clear picture.
We can talk about ROI in the purest sense – a measure of financial efficiency or a profitability ratio. But, we can also talk about ROI as a combination of factors that give you a more holistic view of how worthwhile your membership business is, and how it’s performing relative to your investment.
Additionally, it’s important to recognize that ROI is commonly used as a way to measure and evaluate specific decisions; maybe you’d like to measure the ROI of hiring a new employee, adding new content, or acquiring another brand, for example.
You might also want to weigh different options against each other using ROI calculations. This could be something like seeing which of several marketing efforts are producing the best returns, or deciding whether the membership model works better for your business in comparison to a standard digital product store. In a sense, any kind of performance measurement or comparison (such as A/B testing) can be seen from the ROI lens.
Want to know more about how to assess the return on your membership site investment? Let’s start with the basics.
ROI as a key performance indicator
As a key performance indicator (or KPI), ROI is calculated by dividing the total value of your investment (or, your net profit) by the total cost of your investment (or, the sum of your costs). In the simplest terms, you can assess the return on your membership site investment by comparing what you’ve put into it vs. what you’re getting out of it.
To start, add up what you’ve paid for:
- Your domain
- Web design
- Content creation
- Software and plugins
- Marketing and advertising
- Skill development (especially if you create all of your own content)
- Equipment and materials
- Any other business costs
Then, calculate your ROI (profitability ratio) using the following formula:
- Subtract investment from revenue to calculate your profit.
- Divide profit by investment to calculate your ROI (return on investment).
- Multiply ROI by 100 to calculate ROI as a percentage.
$10,000 revenue (earnings)
– $4,000 investment (costs, expenses)
= $6,000 profit
/ $4,000 investment
= 1.5x ROI (return on investment)
Non-monetary costs to consider
Although it isn’t necessarily a standard part of the formula, any non-monetary costs of running your membership site should be taken into consideration, too. You might not even realize how much your membership business has required of you until you begin to look at these costs.
Consider the value of:
- The time and effort you’ve spent managing everything, creating content, providing support, etc.
- The financial risks you’ve taken to build your membership site
- The increased level of responsibility you have as the site owner
- Other sacrifices you’ve made to turn your site into a reality
You might say these are just the standard costs of running any kind of business, but they’re no less applicable! You could even assign a monetary value to your time (for example) if you wanted to factor it into the calculation.
What is your time worth to you? What value do you place on your efforts?
What are you getting out of your membership site?
Sure, you have other reasons for running your membership business aside from your own benefit, but you want to be be satisfied with what you’re getting out of it. Let’s face it – you probably didn’t start your membership site solely out of the goodness of your heart, and it’s okay to desire profitability and other benefits!
Are you meeting your membership revenue goals?
How many months or years have you been running your membership business? Are you far away from your revenue goals? Has your site been chronically underperforming? Or, are you hitting the mark – even doing better than expected?
Are you happy with where you’re at?
Does your membership business bring you joy? Do you like helping your members achieve their goals, and do you feel like your efforts are worthwhile?
If you’re not enjoying running your membership business, or you feel excessively stressed, disorganized, or underwhelmed by the whole thing, it can help to simplify as much as possible. Creating a content strategy can also be especially effective if you’re having a hard time managing everything.
Is your site building traffic and growing?
What’s your conversion / sign-up rate? Bounce rate? Are you getting increasing traffic? Quality traffic?
If you haven’t hit your revenue goals yet, but your membership site is growing, you could be doing better than you’d think from looking at revenue alone.
What’s your average member lifetime value?
How long do your members stick around, and what’s the value of that member lifetime? Are you getting a good return on each new member gained? Are your efforts paying off and producing an average member lifetime value that justifies your investment?
For some extra guidance, check out our post on the long-term value of your members!
Are your members happy?
Often, one of the biggest motivations for switching to the membership model is to help members achieve their goals – even guide them through the process. So, it follows that a measure of your ROI is the happiness (and success) of your members.
Are your members engaged?
Is your content being consumed? Are your blog articles and newsletters being read? Is your content strategy producing results? Have you implemented gamification, and is it working?
If not, there may be issues you can fix. You can use heat-mapping tools like Crazy Egg to find out what’s getting action on your site, and what’s not. You might also consider auditing your site design to identify any needed improvements.
Are your members succeeding?
If your goal is to help your members succeed, you can evaluate how well you’re doing based on how well they’re doing. Are your members reaching their goals, or improving their lives in some way?
We put together another post about creating meaningful memberships that you can check out over here.
What’s your churn rate?
Since retaining existing members can save so much money and effort in comparison to acquiring new ones, understanding whether or not your member retention efforts are succeeding or lacking is vital if you want to accurately assess your ROI.
For more insights on the topic, check out the our guest post on member churn by Amanda Northcutt (of Member Up and MemberScore.io).
It’s more than your membership site alone
If you’re thinking of membership site ROI from a holistic point of view, then you should really consider your entire brand in the equation. After all, your members (and potential members) interact with your brand in various arenas outside of your website, too.
Your social media accounts
What kind of social media following do you have? What about engagement? These things provide a lot of value to your operation, as they give you useful feedback, as well as a pre-qualified audience for marketing your memberships.
People also look to social media to find out if a company is legitimate and consumer-approved. In short, social media is an efficient form of social proof – something that’s of critical importance when you run any kind of digital business!
Measuring ROI isn’t so simple if you’re considering the long-term picture (which you should). Obviously you hope to have a good financial return so you can keep running your site, but also consider the reputation and brand reach impacts your site might have for you. Putting a lot of time and effort into producing a high-quality membership site now might have significantly positive impacts later on, even if the financial return is lackluster early on.Pippin Williamson (Sandhills Development)
Brand recognition, brand image, and brand equity – everything from the the public’s perceived value of your brand, to the word-of-mouth popularity of your brand and the industry authority you have plays a part in the return on your investment.
If you get a lot of value from the increased industry authority your membership business has helped you generate, then the return on your investment may be higher than you thought. If you are meeting your revenue goals, but you haven’t gotten much traction on social media or become as widely recognized as you’d like, you might conclude that your returns are falling short.
It all depends on your goals and what you value!
ROI can be used in different ways
At the end of the day, you can come at your membership site ROI from a holistic viewpoint that incorporates non-monetary costs and benefits, or from a purely financial angle, either to calculate a simple profitability ratio, or compare multiple business decisions or elements of your membership site in order to find out what is more profitable (or cost-effective).
Either way, ROI is a ultimately a tool that can provide you with useful data to help you improve your business – whether you want to make budget and marketing decisions, hire outside help, make changes to your membership pricing structure, or various other considerations.
How have you gone about assessing your own membership site ROI? What factors do you consider the most helpful? Let us know in the comments below!