New Money: Pricing Tune-Up
The case for fearlessly raising membership fees.
If you have difficulty getting your board or senior staff to increase prices, you’re not alone. Board members often say, “It’s the wrong time to hit members with an increase.” They’re really saying they don’t want to be answerable to members for raising prices on their watch. That’s a political approach, not a practical one, and it has damaged many an association.
As for senior staff: They’ll say, “We’ll lose too much volume on our sales,” but their real concern is that too many members will be unhappy. Perhaps, but that fear focuses more on the number of products or services sold, not the net income that can be earned.
What I have learned over more than 35 years of consulting on pricing is that regular reasonable increases rarely decrease membership or sales, and they almost invariably increase the bottom line.
There are two common pricing problems at associations. Let’s begin with a biggie: Most associations do not adjust prices annually. If your organization does not regularly adjust its prices, the real value of the dollars it collects will erode, compared to the costs it incurs on goods, services, and salaries.
Inflation has not been particularly high lately, but it adds up over time. According to Department of Labor statistics, if you charged $100 for something in 2007, you now need to charge $110.73 to earn the same amount in real dollars. Think a difference of $10.73 is not so much? That’s roughly 11 percent lost. Apply that 11 percent to a $2 million budget, and we’re talking $220,000.
Lost value is only one problem that stems from stagnant prices. How about time wasted on board politics? If you do not raise prices regularly and modestly, eventually you may have to raise them significantly, and there is little that is more likely to create dissent on a board.
A good alternative is to recommend that the board increase prices in steps. After two or three years the association will catch up with the real dollars it should have been charging, but it’s obviously better to keep up.
Let me stress this: You have to review prices every single year on every single item. (I say “review” because raising prices isn’t always the goal; sometime you may need to reduce prices or bundle items.) This is an essential step for leaders to fulfill their fiduciary responsibilities to the organization.
The second major issue involves dues. In a course I teach on pricing, I regularly ask two questions. The first is, “How many of you have raised dues in the last two years?” Many executives indicate they have, even during the recession. Then I ask, “How many of you lost net income as a result?” Only one executive has ever said her association did.
Though the board may not want to increase dues, those dollars are a vital resource. Boards that rely on dues must accept that they can judiciously be increased without peril.