069: The key metrics for a membership business - with Matt Inglot
🗓 March 31, 2021
Matt Inglot is the founder of Tilted Pixel, an agency specializing in growing membership sites. In this episode, he joins Ward to discuss how to avoid getting overwhelmed with membership data and which key metrics you should focus on.
✍️ Show Notes
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📄 Show Transcript
This transcript is computer generated, please excuse any errors :)
Ward Sandler: Welcome, everybody. Today I'm talking with Matt Inglot of Tilted Pixel, an agency specializing in growing membership sites. Matt's agency has worked with numerous 6 and 7 figure membership sites and has a deep playbook on what works and what doesn't in the membership space. Matt, welcome to the Membership Maker podcast.
Matt Inglot: Thanks so much for having me, Ward!
Ward Sandler: Sure thing. All right. Measuring the impact of the efforts to grow a membership can be challenging, but it's the right way to inform business decisions. Often we get asked how people should incorporate the right metrics to assess the performance of membership and which metrics are the most important.
Matt Inglot: Yeah, absolutely. And I'm sure people have heard this before. You got to measure, you got to get data, and then you got to act on it. But what happens with business owners is they quickly get overwhelmed because everyone tells them to do that. But then how do you do it? And then you go and do something like sign up for Google analytics, and you suddenly see pages and pages and pages of really sophisticated information, and you don't really know what to do or how to act on it. And then you go in, and you sign up for a few more tools, and it's very easy to get overwhelmed. So while there are a lot of metrics, they really break down first and foremost into two categories. In each of these categories, I can give you one metric that's more important than any other. So we have two categories: One, we have the performance of your marketing, right? So how well, how good of a job are you doing at actually converting people into customers? Okay. And then the second category we can look at is retention. How good are you keeping customers, right? And those, when you think about it, are the two lifeblood of your revenue, right. If you're not, if you're not making sales, well, then your sales aren't going to go up. You're not going to get money coming into the bank. Still, if you're not holding onto those members, then you're going to be in this endless cycle where you're just trying to fill up this leaky back bucket because for every member you sign up to, you leave, and that's a problem and can destroy many businesses. So there are two metrics. So let's look at marketing first. Everything about marketing that you can possibly hear all boils down to one single metric, which is called customer acquisition cost, which is how much money does it cost you in order to acquire a member. And it's so simple because if it costs you $20, In whatever it is that you're doing in marketing to acquire a member and there were $50 to you or a hundred dollars to you, then, you know, you're making money. But if you're banging your head against the wall, doing things that aren't working, as well as you hope like you're running paid ads and it's, you're, maybe you're spending $300 for every customer you're acquiring, and they're worth a hundred dollars to you. Then, you know, you have a problem, and you know, you got to fix that. Generally, the game is, you know, how, how can you reach the goal of getting as many customers as you can for a cost that's acceptable to you and that makes you money and is profitable. And the beauty of it is it's when you know those numbers, then you can scale up any marketing that works, you know, for example, that you can spend $50 and it's okay. Or, you know, that it's not okay, which takes us to the other metric: Customer Lifetime Value, and that is our retention metric. And that is how much does a customer spend with you over the lifetime of their membership? So when you think about that, that's a function of how much you charge, right? Whether it's monthly or annual or so on times, how long they actually stay with you, how many billing cycles, right? So if you charge 20 bucks a month and they stay for three months: on average, then there were $60 to you. If you charge $200 a year and they stay for two years on average, well, there were $400 to you, right? And the name of the game here, as you want to increase customer lifetime value as high as you can, right? Because we know every single member will leave eventually, there's no such thing as forever. So we want them to stay around for as long as possible. We want our pricing to be effective. So they're paying us a reasonable fee for staying around. And at the end of the day, we want to have a nice, big customer lifetime value because then that comes back to customer acquisition cost. And like I alluded to, if you know your customer lifetime value and you know, your customer acquisition costs, then you know exactly how much you can spend on your marketing to acquire that customer, and you know exactly what kind of a return you're getting. And these metrics both naturally break down into other activities you can be doing in order to improve them. So, for example, if you think your customer acquisition cost is too high, then you know, you have to look at your marketing and what's working and what isn't and how you can improve it, right? If your customer lifetime value is really low, let's say it's like $50. Yeah. Then, you know, you either have a pricing problem, or you have a retention problem, and then you can dig into those, right? So those two metrics are so powerful because they can tell you a lot. And those are the two metrics that we look at first and foremost when we work for a client because we know that based on how those look, we know exactly where to look for opportunities.
Ward Sandler: Yeah. So I definitely want to dig into some of these Customer Acquisition Costs to start with. I think, you know, and correct me if I'm wrong, that something that's relatively easy to calculate. If you're doing ads, if you're not running ads, I'm curious how you would like, for example, for MemberSpace, we don't run ads on any social platforms at all, so how would we calculate our customer acquisition cost?
Matt Inglot: Sure. So you don't run ads on platforms, but you definitely spend money and time on your marketing. For example, I assume you write like blog posts; you're doing this podcast. So there's a certain financial cost to that. And then there's a certain time cost, or you can attach some reasonable dollar value to your time. So you know that there is a real marketing cost and at the simplest level is you can take how much you're spending on marketing, including valuing your time, and you can divide that, by the number of customers that you're getting over that same time, period. So you spend five grand on marketing a month, and you get a hundred customers. Then you're spending $50 a customer to acquire them. Now, ideally, if you're doing a lot of different types of marketing, so you have different marketing channels, right? And hopefully, you're at least tracking things closely enough that, you know, what channel brought that customer in and how much you're spending on that channel, because it's nice to say, overall, we spent this much per customer, but if you don't know what marketing is working and what isn't, it's very hard to then make good decisions about what needs improvement, what to keep and double down on and what to get rid of.
Ward Sandler: Right. Okay. So for lifetime value, for sure, that's definitely an important one. That's something that, you know, we track. I'm sure a lot of folks track there's a world of other metrics out there that people are aware of. Probably some of the most popular ones are on MRR, monthly recurring revenue, churn, which is like your cancellation rate month over month or year over year. Revenue retention percentages is another one that, you know, we've definitely heard of, and if you look at any of those, Is there none that is really worth paying that much attention to? Or is it really as simple as, 'Hey, everything boils down to customer acquisition, cost, and lifetime value' and as long as those two are in the right ratio, your lifetime value is significantly more than your customer acquisition costs? That's really all you need to worry about? Is it that simple?
Matt Inglot: Well, no, not really because you can, you can always go deeper. Right? So, for example, all those metrics that you mentioned all affect customer lifetime value because they all are some sort of measure of how long people are sticking around. So, the metric that people are most probably familiar with listening to this as churn, right? Churn tells you how many people are, how quickly are people leaving your site after subscribing at that tells that as a percentage. And there's a whole calculation to it. But basically, a high churn percentage means a lot of people are leaving, right? Low churn means that people are staying around a lot longer. That drives customer lifetime value. So let's say you build your monitoring around those two metrics, then, you know, if you want to increase customer lifetime value, then you'd jump one level deeper and start asking yourself, well, what affects customer lifetime value? Well, churn certainly does. You can then build on that and say, okay, well, we need to improve churn because if we improve churn, we're going to improve our customer lifetime value. But it's important to have these two top-level metrics because otherwise, you can actually get yourself in trouble. You and I also talked about pricing strategies and charging monthly versus yearly, and one of the things that we discovered is that typically getting rid of monthly plans is actually beneficial because you're going to make a lot more money off the annual plans. And why is that? Because people on annual plans have a much higher customer lifetime value, two to three times that of a monthly plan. But if you do that, you will also find that your conversions will drop a little bit, right? Meaning if you think about these top-level metrics, your customer acquisition costs might go up a bed because you're not converting as many people, but because we're thinking about these top-level metrics. We know if we make a move like that, our customer lifetime value will go up a lot compared to how much our customer acquisition cost goes up. And therefore, we know we're actually making lots of money, but if you don't have these top-level metrics and you're not, you don't have your eye on the prize, and you can look at the wrong thing and make the wrong decision and say, well, 'Oh, our conversion rates dropped and therefore this is a bad idea'. Well, you didn't look at your customer lifetime value and how much that went up, and you just left a lot of money on the table, right?
Ward Sandler: Yeah, it does. Matt, thanks for taking the time to talk with us. We really appreciate it. Would you like to share any resources or recommendation for folks that are trying to learn more about Tilted Pixel?
Matt Inglot: Yeah, absolutely. Well, first and foremost, just go to our website, tiltedpixel.com and right there on the homepage and the footer. You can find our newsletter. You can subscribe there. You'll immediately get a few lessons on optimizing your membership site, and we also periodically send out more information, more ideas on how you can grow your membership site. And of course, if you want to work with us, then that's the same resource tiltedpixel.com. Get in touch, and let's see if we're a fit.
Ward Sandler: Excellent. And I just want to really throw my hat behind Matt here for folks to definitely reach out, they definitely know what they're talking about, and they'll definitely help you scale up your membership. So thank you.
Matt Inglot: Thanks so much, Ward.