Nonmember Fees: A Not-So-Simple Decision
The right nonmember price for association products boosts revenue, makes membership more appealing, and steers clear of antitrust concerns. It's just a number, but it's so much more.
“How much more should an association charge nonmembers for products than it does for members?”
This seems like such an innocuous question. And commonplace, too. Associations have to consider it every time they set prices for new products or set new prices for old ones. It comes up on ASAE’s Collaborate forum often [member login required] .And yet it turns out trying to find a clear answer is a trip down the rabbit hole.
Pricing strategy in general is hard enough, and something in which associations aren’t known for their savvy. But pricing for a second audience just adds another layer of complexity: The member discount ought to be enough to make joining attractive, while the nonmember markup shouldn’t be so high as to feel like gouging.
ASAE benchmarking research from 2012 showed a median markup of 25 percent on association products and services for nonmembers compared to members (the average markup was 36 percent). Those numbers come from survey responses to a question about the average markup across all products at each respondent’s association, so the data is at best a very smoothed out view of different nonmember markups that, as can be seen in the discussion threads in Collaborate, are all over the map.
But associations get a third complicating factor because of their status in convening market competitors and serving whole industries, which means selling a product or service also means granting access to it. And so the small matters of antitrust law and tax-exempt status are also of concern. Some products and services that are essential for doing business in an industry must be made available to nonmembers. That much is clear, but the question of a reasonable nonmember price remains.
Remarkably, though, in the place where one can usually take solace that a concrete answer will be found—the law—very little solid precedent exists, says Jerry Jacobs, partner and head of the Nonprofit Organizations Practice at the law firm of Pillsbury Winthrop Shaw Pittman in Washington, DC, and general counsel to ASAE.
“This is an area where there’s been virtually no litigation and virtually no government pronouncements, forever,” Jacobs says. “If you have to look for precedents, you have to kind of scratch the dirt to find things.”
This is a bit of an oddity. Jacobs is also author of the Association Law Handbook, Fifth Edition, published by ASAE, which weighs in a hefty 728 pages. In other words, on most association matters, the law has plenty to say. The Handbook supplies one five-page chapter on setting nonmember prices, which Jacobs partly summarizes in an online article at ASAE, “How to Set Nonmember Fees for Association Services” [member login required].
There, Jacobs writes that, from what little guidance exists, fairness is the guiding principle. In the unusual case where a product or service is indeed essential for doing business and thus must be offered to nonmembers, setting a nonmember price based on the development costs and the value of volunteer time contributed in generating it seems reasonable. However, “that’s me saying what seems intuitively might be defensible, but no courts or federal agencies have ever said anything definitive about that,” Jacobs says.
The Federal Trade Commission, in an advisory opinion nearly half a century old, suggested that nonmember prices on essential products should not be so high as to compel membership. “I think FTC was looking at that for its implications or secondary ramifications,” Jacobs says. “If everybody in a profession or everybody in an industry were forced to join an association, would that give the association so much power that it could then force those professionals or businesses to toe the line on pricing or market share or whatever?”
As Jacobs sees it, though, that scenario is “quite rare,” and most association products and services don’t meet this threshold. “What services are there that associations provide to their members without which the members cannot do business? Not very many. Some people speak to standards, certification, and accreditation, which in some contexts, not all, are essential to do business in a field,” he says.
For products and services that are simply of very high quality but not truly essential to doing business in the market, then “probably ‘the sky’s the limit’ when it comes to price” for nonmembers, Jacobs writes. Of course, setting too high a price can turn nonmembers away outright, when ideally nonmember sales can be a source of both revenue and membership leads. Logically, the better the product, the more an association can charge nonmembers for it—to both maximize revenue and increase the appeal of joining to get the member rate. But the dilemma is that an association’s best products are also likely to be the ones that fall closest to meeting the “essential” threshold. And determining whether they do is something an association would be prudent to seek counsel on. “A little knowledge in this area is dangerous,” Jacobs says.
And, just for good measure, here’s one more tricky element of nonmember pricing: If you set the nonmember price on a great product or conference so high that it draws a lot of people to join just for that one member discount, you may likely see a lot of these “unitaskers” join for the discount one year and lapse the next, sending your membership numbers and renewal rates on a roller coaster ride.
So, with all of these concerns to factor in, how does your association set its nonmember prices? Do you follow a consistent policy or process to decide? What other considerations must be weighed? Please share your thoughts and advice in the comments.