Leadership

Overcoming The Association Value Gap: Part I

By / Mar 7, 2013 (iStockphoto/Thinkstock)

Even in 2013, association business models based on membership rely heavily on dues revenue. Leaders need to understand the limitations of this approach and think about how to create value that does not depend on membership.

In a recent post, Associations Now blogger Joe Rominiecki shared what both he and I regard as a startling fact: 53 percent of associations surveyed in 2011 had raised their dues in the previous three years. To put it another way, during the most severe economic decline in most of our lifetimes, more than half of associations surveyed still moved forward with a dues increase. This data point is significant because it is the clearest evidence yet of the value gap that continues to hamper membership-centric association business models.

By definition, membership-centric business models wrap all value into membership, leaving most associations with few alternatives for creating radical new value.

According to the most recent edition of ASAE’s Operating Ratio Report (ORR), membership dues account for an average of 38 percent of total revenue for all associations. No other single revenue category comes close to reaching that number. (For comparison, the ORR reports that meeting/convention registration fees, the next-highest single category of revenue, account for just over 11 percent of revenue, on average.) Despite all the protestations to the contrary, then, membership dues remain the only sustaining revenue stream for many, if not most, associations. And in his blog post, Joe puts his finger on the dilemma this creates:

For these associations, I suspect that the decision to increase has been tricky in recent years. Keeping dues flat makes for a goodwill gesture to members who are tight on money. But the problem with not increasing dues is that, if expenses still rise, every year of static dues digs the association deeper into a hole to be climbed out of later, either through cutting costs, attracting a lot of new members, or raising dues. If and when you do get around to raising dues, the greater the increase needed to “catch up” means the greater the risk of losing some members due to sticker shock.

On one level, membership-centric business models need retention more than revenue to ensure their integrity, since it is possible to monetize members through third-party revenues such as advertising, exhibits, and sponsorship. (According to the ORR, these revenue categories combine to account for, on average, about 14 percent of association revenue.) So while the decision not to increase dues may be partly a gesture of goodwill, it is also an attempt at self-preservation.

Unfortunately, this effort can only go so far, as securing increasingly limited and targeted third-party marketing dollars becomes a more competitive endeavor. In addition, as Joe makes clear in the quote above, without the ability to grow the dominant revenue stream through changes in pricing, associations are typically left with only two options: increase membership numbers substantially or reduce costs significantly, both of which are usually much easier said than done.

This is the association value gap: the space between what associations are able to charge for their most fundamental value proposition and their need for additional profitable revenue streams to sustain their operations. By definition, membership-centric business models wrap all value into membership, leaving most associations with few alternatives for creating radical new value that are not dependent on membership to fill the gap.

My article “Trapped in the Past,” which appears in this month’s issue of Associations Now, challenges association boards to look beyond the richness of their own association membership experiences to recognize the unintended negative consequences of their organizations’ membership-centric business models. Of course, this is extremely difficult to do, so in Part II later this month, I will explore how boards, CEOs, and C-suite executives can work together to overcome the association value gap.

 

Jeff De Cagna, FRSA, FASAE

Jeff De Cagna, FASAE, is chief strategist and founder of Principled Innovation LLC, in Reston, Virginia. Email: [email protected] More »

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