Once, very early in my career – actually right out of college – I took a stab at selling insurance. I won’t bore you with the particulars of my epic failure, but like most jobs in life, I did learn a few valuable lessons. And an aphorism or two to boot!
One of my favorites was “You know when money talks the loudest? When you don’t have any…then it screams.” The embedded lesson was to not panic and set a plan afoot that would provide a steady input of income.
Membership Revenue vs. Products and Services
I joined Marketing General in 2005 and have worked with a number of membership organizations who have found themselves in a state of serious negative growth, money screaming loudly. Given that, I would bet that I have fielded this question at least 20 times since then: “What if we were to reduce the cost of membership or offer it for free and gain the revenue we need through all those renewing members?”
Ignoring individual circumstances my answer would be simple. Don’t do it! But like many issues membership groups face, the successful – note I did not say “right” – answer depends on the individual organizational situation.
With a few exceptions, most organizations have three primary available sources of revenue: membership dues, products and services sales, and donations. The business goal of a successful not-for-profit firm is to generate enough overall revenue to offset operations costs, which include the combined costs of administration plus products-and-services delivery to constituents. Ideally an organization thrives on income, defined as the surplus cash after costs, to fund long-term growth and a continual improvement of products and services to maintain its constituent value. Surprisingly, many organizations ignore this simple business fact and run “just like we always have.”
What is Your Organization’s Currency?
When presenting on membership to various groups, I often use the metaphor, “members are currency.” A member brings in dues for every year of active membership. So, if dues are $50, and the member stays for 6 years – an 84% renewal rate – then the member is worth a total of $300 in dues. However, a member also spends money on conferences, books, webinars, services, and donations to the organization. So the lifetime value of a member depends on the combination of dues and the additional paid-for value offered by the organization. And lifetime income is any surplus that remains after extracting the cost of doing business. A delicate, critical balancing act for any not-for-profit leader.
This is where the free membership question collides with reality. Whether to reduce or eliminate dues depends on the successful balance of these three sources of revenue. The decrease in dues revenue has to be offset by a corresponding increase in non-dues revenue per member, or income will collapse. And this begs an even more critical question for your group: Do we deliver enough value to our members that their payments will offset their cost?
Value Proposition – The Not-for-Profit Philosopher’s Stone
Members will pay for what they value; they won’t pay for what they don’t. That includes membership. So before your organization decides to offer free- or reduced- price membership, it is essential to determine if the value you offer is something they will pay for. The hard truth here is that most organizations contemplating eliminating or reducing membership dues are blind to a deep-seated value proposition issue: members simply do not want to pay to join. Giving it to them for free and hoping somehow they will discover some value worth paying for can’t be counted on as a successful strategy for growth. Free members historically do not renew, and reduced membership dues are often met with a demand for reduced renewal fees as well. What both strategies have in common is that they cannibalize income, the lifeblood of future growth and security.
Like the ancient search for the universal catalyst that would turn lead into gold, member value is the not-for-profit’s Philosopher’s Stone. Before deciding to reduce dues or offer free membership, MGI advises that organizations work diligently to build a strong value proposition that pays. Customers always vote for products with their pocketbooks. For membership organizations, it’s the same.
If you have any questions or would like more information on how MGI can partner with you to help increase your membership NOW–contact Harold Maurer at hmaurer@marketinggeneral.com or 703-706-0391.