The revenue impact of COVID-19 has made some associations rethink how much they should keep in reserves and hone revenue strategies to ensure they align with the group’s core values and member needs.
From the moment the pandemic began forcing closures and cancellations, associations have been worried about how to stay financially afloat. However, two experts say the past year has provided new insights on how to tackle reserves and generate revenue.
Erin Fuller, MPA, FASAE, CAE, president of association solutions at MCI USA, said the traditional rule for reserves is to keep six months of operating expenses. However, during recent webinar “The Business of Associations: Replenishing, Growing, and Leveraging Your Reserves,” Fuller said the pandemic has upended this thinking. In the future, she thinks calculating reserves will be more nuanced and factor in how the association generates revenue.
“I actually serve on the board of a trade organization where we are looking at a goal of 12 to 18 months [of budget] as our new goal for reserve funding, in light of what is happening in the pandemic, in light of the fact that our group traditionally has used in-person events for a lot of revenue growth,” Fuller said. “I think that, in general, assessing reserve goals for associations and nonprofits is now going to be a much more dynamic process, based on the actual business model rather than a template or a rule of thumb.”
Because so many associations relied heavily on in-person events for revenue, there has also been a shift to looking for non-event revenue.
“Have associations look at assets—whether it is their content, other [intellectual property], or events—and leverage that, instead of just reserves,” Fuller said. “For boards that really have a business orientation and can have conversations where they take the emotion, ownership, or tradition out of it, they’ve been able to really leverage opportunities presented in the past year.”
Carrie Hartin, president of sales, solutions, and services at MCI USA, said that many organizations figure out the best assets to leverage by evaluating their goals. “The look ahead part of that strategic vision is: Who are we and what do we value that we bring back to the marketplace?” she said. “How do we make sure we’ve got the right content and education for the community to fulfill its needs? The things that no longer align are potentially places where organizations need to make those changes, and sometimes those are opportunities to actually sell products to others that might have need or interest.”
For example, content is a place where associations can be active right now. “Last week, I was talking to a mergers and acquisitions broker who actually has a lot of items that are sitting there that relate to content and data,” Hartin said. “It’s either an opportunity for an association to buy access to content that would be very expensive for them to build or create on their own, or to take an asset that they have and potentially sell it, because maybe it’s no longer relevant to the future value that they’re going to bring to their industry or profession.”
Fuller added that she worked with a travel-related association that purchased the credentialing program and database information from an organization that went out of business. The group leveraged that purchase to provide more value for members. Fuller said the groups that have done best in the pandemic have been future-focused and not “so wrapped up in mourning the loss of what they weren’t able to do” that they missed opportunities.
Successful associations are also accepting of the fact that nonprofit tax status doesn’t mean they shouldn’t be creating really profitable products.
“We always say that nonprofit is a tax status, not a business objective,” Fuller said. “We have to remind the boards of directors that they are the boards of directors of a corporation that has a protected tax status that will reinvest results into member equity. Profitability doesn’t mean that anyone is lining their pockets. Profitability means you’re able to offer more, and maybe even able to offer more at a lower price point or a reduced access point to students or emerging professionals, so there’s a benefit there.”
How has your association changed reserve policies or revenue strategies since the pandemic began? Share in the comments.