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  • Key Success Factors: Membership Renewal Rate Determines Profitability

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    Hannah Reinecke
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    Membership renewal rates are key to profitability, as new members incur cash outflows while renewing members provide cash inflows. The company's auditors agreed with its accounting practices of treating marketing costs as assets, but there were no clear accounting standards on this issue at the time, and analysts questioned the auditors' ability to accurately value these costs. Analysts also drew parallels between this company and another that had to write down assets from capitalizing membership acquisition costs.

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    Business Description of C

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    Membership renewal rates are key to profitability, as new members incur cash outflows while renewing members provide cash inflows. The company's auditors agreed with its accounting practices of treating marketing costs as assets, but there were no clear accounting standards on this issue at the time, and analysts questioned the auditors' ability to accurately value these costs. Analysts also drew parallels between this company and another that had to write down assets from capitalizing membership acquisition costs.

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    7 views4 pages

    Key Success Factors: Membership Renewal Rate Determines Profitability

    Uploaded by

    Hannah Reinecke
    Membership renewal rates are key to profitability, as new members incur cash outflows while renewing members provide cash inflows. The company's auditors agreed with its accounting practices of treating marketing costs as assets, but there were no clear accounting standards on this issue at the time, and analysts questioned the auditors' ability to accurately value these costs. Analysts also drew parallels between this company and another that had to write down assets from capitalizing membership acquisition costs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 4

    Key Success Factors

    Membership renewal rate determines profitability


    new

    member incurred cash outflow of $2 in first

    year net cash inflow of $27.36 for each renewing member Marketing outlays to maintain high sign-up and renewal rates

    Lemons Problem

    Companys auditors agreed on CUCs accounting practices and SEC viewed accoutning policy as acceptable However, there were no accounting standards on the topic in CUCs case to provide basis for audit opinion and SEC decision Analysts did not believe in CUCs auditors expertise to accurately judge the value of marketing outlays

    Information Mismatch

    CUCs managers believed that payoffs from new products far exceeded marketing costs reported outlays as assets on companys financial statements Safeguard Services Inc., a credit card registration company also capitilized membership acquisition costs, but had to take significant write-down on this asset Analysts equate the two cases

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