All associations – just like any successful business – should look into diversifying their revenue streams. But before you think about new revenue sources, it’s necessary to understand your current revenue sources. One way to start is by bench-marking your current revenue sources against industry peers. Ultimately you will want to develop a non-dues revenue strategy that addresses why you want new revenue sources (your goal) and how best to achieve it. Consider these insights as you read the companion article on “Demystifying Diversification.”
In the 14th edition (October 2015) of its Operating Ratio Report, the American Society for Association Executives (ASAE) compiled Form 990 data from 2,824 associations (as well as supplementary information from 512 associations that completed another questionnaire), to provide a review of revenue streams from a cross-section of associations and professional societies.
Below is a snapshot from that Report, followed by some guidelines for developing a non-dues revenue strategy.
While membership dues continue to be the main source of revenue, its share has been shrinking (which varies according to membership type). For example membership revenue as a percentage of total revenue is 41.4% for trade associations and 34.2% for individual membership organizations. Segmented by IRS tax status, dues revenue comprises 31.4% of total revenue of 501(c)(3) organizations and 40.4% of 501(c)(6) organizations.
More specifically, for trade associations, the top five revenue producing categories are:
- Meeting/convention registration fees: 10.4%
- Exhibit/tradeshow booth fees: 9.7%
- Certification/accreditation/standardization evaluation; 5%
- Meeting sponsorship: 4.6%
- Educational programs: 4.5%
For individual membership organizations, the non-dues revenue drivers are:
- Meeting/convention registration fees: 12.5%
- Educational program fees: 7.5%
- Contributions/grants/contracts non-government: 7.2%
- Exhibit/tradeshow booth fees: 6%
- Certification/accreditation/standardization: evaluation: 4.7%
And to provide some additional context, ASAE looked at each organization’s total revenue and found that non-dues revenue comprised 39.4% of revenue for organizations with less than $1 million total revenue; 36.6% for organizations with total revenues of $2 – $5 million and 35.8% of revenue for those organizations with total revenue of $10 – $20 million. How does your trade association or professional society stack up against these numbers?
Non-Dues Revenue Strategy
- Articulate your goal(s) behind non-dues revenue streams. Is it to:
- Diversify your current portfolio of dues and non-dues items?
- Increase overall revenues?
- Establish your organization as a leader of innovative products and services?
- Better meet member needs?
- Improve operating margins?
- Pursue other goals?
- Develop a 3-5 year history of your current revenue streams.
- Determine if you have a growth gap. What does your strategic plan project in revenue growth in 3-5 years? Estimate what your current revenue streams will generate and subtract that from your 3-5 year goal. If current revenues are projected to meet that number, that’s good news. If not, the deficit is a revenue growth gap which can be used to identify the degree of new revenue sources required. If the number is small, enhancing current products and services may be sufficient, or a line extension may be appropriate. If the number is large, new-to-the-organization revenue sources will likely need to be developed or introduced to fill the gap.
- As you look at revenue diversification strategies, evaluate your organization’s risk tolerance. For example, expanding a current product or service is fairly low risk; introducing new services is riskier. Moving along the risk continuum, the highest potential for opportunity would be something totally new to the association/professional society industry but also the most risky.
Keep in mind that the most significant driver of a non-dues revenue strategy is member need. Pursuing or enhancing a non-dues revenue strategy does not mean walking away from dues. Get a good read on what your members are thinking through a member survey or focus groups so that you have current and detailed feedback about programs and services. Typically, member needs fall into three categories: unsatisfied, unmet or unknown.
Knowing your member needs – as well as your organization’s revenue goals – are critical components of any non-dues revenue strategy.