photoThere’s significant pressure to diversify revenue sources for associations, especially if membership is stagnant or declining. And many associations have fantastic diversified revenue streams from a variety of sources.

I would argue that thinking about non-dues revenue should start with the stakeholders and how the association can add value for them – not with a focus on simply generating funds. But even with that approach, new or ongoing non-dues revenue programs need to be managed strategically, and with open eyes, for them to really contribute to the success of the association.

Why are you doing this?

There should be very strong strategic logic attached to your business plan. This should be true for any business plan, but particularly in a situation where a) lots of people are involved with the decision (staff as well as board), and b) many of those people won’t likely be around a few years later when the decision is evaluated. This is distinct from private sector entrepreneurship, where the same person or people typically see the business through its entire life cycle.

So it needs to be very clearly stated why this is being undertaken and what the association is expecting to get out of it. If you have an existing non-dues revenue program, it’s not too late to articulate this, especially as part of strategic planning.

In particular, it should be clear what your revenue-generation goals are, and how the enterprise ties to your mission.

Why you?

One thing you absolutely need to spell out is the strategic rationale for success. You need to have a reason to be in that business other than it being vaguely related, and thinking you can maybe make money.

Running a business is hard. Most new businesses are gone before five years is up.

Maybe you have access to a particular talent base, or you have unique expertise, or you can reach economies of scale through buying power. If you don’t have a clear sense of why you, specifically, with the strategic assets you have, are going to succeed in this endeavour, this enterprise is far more likely to fail.

If you are competing (and you are) what makes you think you are going to win? This may be a hypothesis or already proven; be clear about which it is.

Get out of the building

Apparently less than 25% of associations indicate that market demand required would be used as criteria for a non-dues revenue idea. If you don’t know if there’s market demand for an idea, why consider it at all?

The Lean Startup model exhorts people to “get out of the building” – find a market before you develop the product. At Lean Startup bootcamp events, people spend a weekend working on a startup in teams – and spend a great deal of their time out of the building, talking to potential customers. Got an idea about social media and sports? Get a basic idea together, maybe a sketch, and take it to to the nearest sports bar, ask people if they’d be interested, and try to get their email address. If you can’t interest people at that level, it’s probably time to try another idea.

Have you gotten out of the building? Again, even with an existing enterprise, you can and should check in with your clients or customers, at a strategic level, to see if you are meeting their needs.

Is it working for you?

Over 80% of associations report that non-dues revenue programs generate revenue in excess of expenses. Which doesn’t sound bad, except that means one in five have unprofitable programs. That money has to come from somewhere else in the organization.

And that may not take into consideration the full costs. It’s important to attach a cash value to staff time even if the enterprise isn’t their full-time job. If an enterprise is using half the time of someone whose fully-loaded cost (salary, benefits, payroll taxes, IT support, etc.) is $60,000, that’s an annual cost of $30,000.

And there is opportunity cost to Board and management time as well – what else could be discussed, thought about, attempted in the time spent to manage this program?

Are you being honest about it?

If you don’t take a good rigorous look at either new or existing non-dues revenue ideas, you run the risk that you will end up with undersubscribed, undercapitalized businesses which fail – or, possibly worse, are allowed to limp along, using resources that could be better deployed elsewhere.

I’ve been involved with squelching the dreams of an entrepreneur. It’s no fun. But sometimes it’s the right thing to do.

There may be non-revenue-related reasons to keep doing something that isn’t generating net proceeds for you to spend elsewhere, but it’s just plain good stewardship to be explicit and open-eyed about those trade-offs.

On the other hand, when business ideas hit and resonate and become real, there’s nothing like it. There are bound to be lots of non-dues revenue ideas in many associations that aren’t yet tested, or maybe just need a tweak to really work well. But they do need smart management.

If you’d like to discuss how non-dues revenue fits into your strategy, please get in touch.

Photo Meredith Low.