Finance

How to Diversify Your Revenue Streams

Meeting members’ needs and their organization’s financial stability: this is what many association leaders are always working on, especially at times when the economy seems to be quite volatile. When well-managed, private companies are constantly expanding their product offerings, adding sales and marketing infrastructure, and looking for ways to increase revenue from existing sources, while at the same time seeking new customers. It is safe to say that associations have to think the same way.

Words Remi Deve

By definition, associations earn most of their revenues from yearly membership fees and from services sold to members, starting with congresses, seminars and other events. In other words, association’s budget depends heavily, not to say exclusively, on members. Therefore, it is preferable to diversify alternative sources of revenues.

Membership dues are well and good, but sometimes they aren’t enough. It’s impossible to get things done without alternative association revenue sources – the ongoing financial health of your organization is at stake. Our partner PCMA has, for instance, a 7,000-member base, but they reach an audience of 50,000 – they call them their ‘customers’ – with their events. Few non-profit organizations live off the interest of a large endowment or have guaranteed sustainable multiyear revenues from any source. Thus, diversifying revenue streams is all about reducing risk and making your organisation durable. Medical associations, with their specific regulations and need for compliance, are a particular case.

Of course, it can depend on how stable or how diversified your sector is. If you rely on membership fee, that all your companies are solar panel manufacturers, and that there is a crisis, then you are at risk as they may cancel their membership. Carlos Lee, Director General of he European Photonics Industry Consortium (EPIC), argues : « It depends how crucial it is to be a member of the association, and, in some cases, to be honest, it’s really not a priority. At EPIC, our association is so broad in applications (medical, communication, energy, manufacturing) and we have so many members (300 across 30 countries) that it’s highly unlikely, if we continue to do a good job, that they would all suddenly cancel. Nevertheless, I try to increase revenue from European funded projects, sponsorship, and events. But I would like 60-80% of revenue to always be from membership so that we keep focused on delivering value to our members. »

Mohamed Mezghani, Deputy Secretary General, International Association of Public Transport (UITP), puts it like this: « Associations must be sustainable. In this regard, they have to challenge the status quo and find new approaches to make their life more comfortable. Associations can suffer from competition of other associations targeting the same members or other organisations developing similar services (e.g. event organisers). Therefore, it is important that they innovate, create new services, strengthen relationships with members, become more efficient, etc. Adapting their business model is part of the approach. First, it means optimising the operating expenses by becoming more productive and improving the allocation of internal resources. Then, it’s about diversifying revenues streams beyond membership-based incomes. The main difference with commercial businesses, is that associations pursue clear missions and any new activities must comply with these missions which are the raison d’être of the association. »

Significant impact

If relying solely on membership dues to grow an organization will have limited impact, an organization that identifies creative ways to change its business model will often be rewarded with a significant impact on their bottom line. According to Alexandra Snelgrove, Senior Director, Social Impact at LIFT Philanthropy Partners, in Growing Associations Through Non-Dues Revenue, « one strategy currently being used by an increasing number of associations is non-dues revenue. Non-dues revenue, or NDR, is any revenue generated by an association from a source other than membership fees. Non-dues revenue activities encompass a broad variety of products and services, ranging from training to accreditation to sponsorship and advertising. »

There are actually a lot of case studies of innovative non-dues revenue to be found the world over. For instance, a shared services program was developed by the North Carolina Bar Association: in addition to leasing space to legal professionals, the association sells back-office services such as IT, human resources, and accounting. As for the British Association of Dermatologists, they maintain a Clinical Advisory Unit to support their members on a number of issues, including service issues and changes on National Health Service reforms. Social media can also provide opportunities. The Society of Corporate Compliance and Ethics and the Health Care Compliance Association, for example, have set up a social network for their members that provides information sharing and network opportunities – the associations earn money from advertisements on that very network. 

Sponsorship: an option

Sponsorship in general is also an option. But sponsorship can be looked for beyond the traditional framework. It can be about seeking financial support from partners with whom an association shares the same values. In that particular case, it could even take the form of a long-term partnership. As Frédéric Destrebecq, Executive Director of the European Brain Council, argues: « It all comes down to strategic repositioning of your organisation, sometimes even a refocus of its strategic mission – why are you in business originally? By asking yourself that question, you can find partners outside your traditional realm maybe but that might advocate similar missions and have the same vision as you. »

As Kai Troll, Head of Development, International Sport and Culture Association, observed at the European Association Summit in Brussels in May, it’s all about building sustainable funding models, sometimes based on partnerships that make you independent from specific industries and enable you to invest in mission driven projects and initiatives. And the more pillars your funding model will have, the more sustainable in the long term your association will be.

This article was written by Boardroom Chief Editor Remi Deve. The right to use it, in parts or in full, has to be granted by the Publisher.

But as Alexandra Snelgrove observes: « A common myth is that non-dues revenue is just about increasing revenue and diversifying income sources. However, successful non-dues revenue activities are those that create additional benefits for members. It’s not just about adding value for the organizations; it’s also about adding value for members. » And as Silke Schlinnertz, Head of Operations & Events, Euroheat & Power, says: « If association leaders must think like businessmen, the end result of their efforts differ. Most of us work for not-for-profit organisations but they are also not-for-loss: in comparison to a company, all is fine if we make zero profit at the end of the year. Associations don’t redistribute profits to shareholders. Any financial surplus will actually benefit your members »

3 creative ways to diversify your revenue portfolio

1 – UITP’s Peer Review. It is a service by which a member benefits from the expertise and know-how of other members having experienced similar situations or projects. The role of the association is to mobilise the resources and expertise and put it at the disposal of the member. One of UITP’s important products in the race for diversification are also third-party funded projects.

2 – Tailor-made services to your members. In a service-driven society, some members can expect the same from the association they belong to. Provide them with a range of personalised and/or purchasable services they can choose from. For instance, at a congress, give them the possibility to attend only this or that session, to attend this or that part of the exhibition. But as Silke Schlinnertz points out, « This requires a lot of thinking and analysis beforehands and then a lot of logistics on the ground. Revenue diversification requires a long-term strategy that includes planning, ongoing cultivation and plenty of patience. Make sure your board and leadership understand the importance of this. »

3 – Engage your members or potential members by providing a career centre. At your career center, you not only offer job openings in your supported industry, but you also provide industry news, articles, blog posts, educational videos, and more. Taking this approach, you’re more likely to draw in potential association members, and you can even charge for premium content, thereby generating additional revenue.

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