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MLV to MAC ratio

Updated
The Goal: Work out your MLV to MAC ratio — the relationship between the lifetime value of a member and the cost of acquiring that member — so you can judge whether your recruitment spend is paying for itself.

Before You Begin:

How the ratio is calculated

The MLV to MAC ratio measures the relationship between the lifetime value of a member and the cost of acquiring that member.

Calculation: MLV : MAC

Best practice: aim for 3:1 as the target ratio — a member should be worth about three times what it costs to recruit them.

Step-by-Step Instructions

  1. Calculate your Member Lifetime Value for the period.
  2. Calculate your Member Acquisition Cost for the same period. You may want two versions of this figure: one based on the recruitment budget and one based on what was actually spent.
  3. Divide the Member Lifetime Value by the Member Acquisition Cost, and express the result against 1.
  4. Compare the result with the 3:1 target. A ratio below 3:1 means you are spending a large share of a member’s lifetime value to win them; a ratio well above 3:1 may mean you could invest more in recruitment.

Example

In 2017, the average lifetime value per member was $1,275. $32,000 was budgeted for member recruitment and $28,875 was actually spent. Breaking those numbers down further, the budgeted recruitment cost was $425 per new member and the actual recruitment spend was $385 per new member.

  • Goal ratio = 3 : 1 ($1,275 : $425)
  • Actual ratio = 3.3 : 1 ($1,275 : $385)

The actual ratio came in slightly ahead of the 3:1 target, because recruitment came in under budget.

Common Pitfalls

  • Mixing periods: The lifetime value and the acquisition cost must come from the same period, or the ratio compares two unrelated things.
  • Comparing budget against actual: Decide which acquisition cost you are using — budgeted or actual — and say so when you report the ratio. The two can give noticeably different answers.
  • Reading a high ratio as good news only: A ratio far above 3:1 can mean you are under-investing in recruitment, not just that you are efficient.

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