Tiered Benefits: A Better Solution for Trade Associations?

A common source of frustration for executives at trade associations—those with company members rather than individual members—is the verification of company size for the purpose of allotting dues. The concept is simple: For the same set of benefits, big companies (whether measured by staff size, revenue, or unit sales, for instance) pay more, while small companies pay less. But it comes with an obvious problem: How do you ensure every member pays its fair share? The honor system risks enabling freeloaders who understate their size, while verification requirements introduce an undercurrent of distrust between association and member right from the start.

The Portable Sanitation Association International wrestled with this dilemma until about three years ago, says Karleen Kos, PSAI executive director. “It was really basically an honor system, and what was happening over time is that the system disincentivized growth and disincentivized candor, because the larger you got the more dues you were expected to pay,” she says.

The solution PSAI eventually arrived at essentially eliminated the problem. Rather than using company size to set dues levels, it created levels based on varying choices of benefits  (opens in a new tab). As with many other associations that have introduced tiered-benefits structures, the choice is now in the members’ hands. How much they pay is tied directly how much they get. And the incentives now point in the other direction, says Kos.

“There is incentive to move up as your company grows, because you’ll save money on things that matter to you. In the same way, there is incentive for us as an association is to engage members more thoroughly in the organization and then to show them ‘You’d be doing better if you stepped up to the next membership level because you’re already using these valuable benefits and paying more for them. In the last year you’ve sent this many people to the conference or you’ve got his many people certified,’” she says.

We’ve examined tiered benefits structures often here at Associations Now, though more commonly at individual membership organizations. Trade associations work in some different ways, but, as PSAI shows, a tiered benefits model can work in that context too. Two key differences are that the dues amounts per member are typically higher for companies than individuals, and the decision to join is often a group decision, rather than a personal one. With more money at stake and more people involved, the transactional value and hard ROI of membership may take priority over intangible benefits and emotionally driven reasons to join.

Hence PSAI’s tiers, which offer specific quantities of specific member benefits  (opens in a new tab) [PDF] in increasing volumes and at increasing discounts at each higher level (Bronze, Silver, Gold, and Platinum). The association’s first attempt at the tiers three years ago was both difficult to manage and less successful than hoped, because the packages were loaded with too many low-value “goodies,” Kos says. The revised list of benefits offered in the second and third tiers are now simpler. “We’ve got a basic package of benefits, and that’s the Bronze Level, or the entry level, on both sides [operator and supplier]. With each ascending level we’ve added a small number of things that more engaged companies really do value and buy anyway. Then we’ve packaged it so member companies are, in essence, prepaying at a discount for valuable benefits they would likely have sought from the association anyway,” she says. In cases when packages aren’t used in full, the association comes out ahead.

PSAI is yet another example of letting members and their behavior show you the way. Kos says the prepay model provides “risk management” for both the association and its members. “As an association we’re getting a certain amount of revenue up front that we previously would have waited for til different points in the year. Now we have a better ability to plan, and the members are locking in prices and discounts, sometimes a year in advance,” she says.

Most member companies start at the Bronze level, but when renewal time comes around, PSAI’s nature as a medium-sized trade association proves advantageous, because Kos can easily identify companies that are on the rise.

“As we hear about our members and their company activities, I might reach out to those owners and talk to them about their business, because I like to know what’s going on in our industry,” Kos says, “Then I’ll make a note of it so when it’s time for renewal, or even on that phone call, I’ll say ‘Wow, with that many more employees, you’re going to probably need more certifications, right? It might make sense to think about a higher level next year.’”

The system of multiple benefits packages comes with a couple pitfalls, Kos says. For one, it’s more complex to administer, keeping track of which member companies get which benefits and tracking if and when they’ve received them during the year. (This was especially problematic for PSAI in the first year of the tiered system, when the packages came with a lot of small perks, she says.) But it also forces PSAI to plan carefully and project costs further into the future, if possible, because the rates for membership packages are set yearly.

For instance, the rates for 2015-2016 were set at the beginning of PSAI’s fiscal year, July 1, 2015. A new member company could buy a package in April 2016 that includes two annual meeting registrations and attend PSAI’s Annual Meeting in March 2017, having paid a rate built in to its membership nearly two years earlier. “If we see the need to raise our package costs because our underlying costs are likely going to go up, we have to recognize there’s going to be a lag before we start realizing the impact of that on our bottom line,” Kos says.

Overall, the results have been positive, though. PSAI’s move to a tiered membership structure came after an embezzlement incident had roiled the organization under its previous executive, so the change was part of an overall revitalization for the association, but the past year has been its best year ever for recruiting new members.

“Some of that is certainly momentum from the turnaround,” Kos says, “but I think there’s something to be said too for a member benefits system that makes sense and that clearly ties to value that matters to the members.”

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