A Board-Level Look at Revenue Generation and Value Creation
By Jim McNeil, Executive Vice President, SmithBucklin
Revenue is the fuel that allows an association to create value for its members and constituents. At one time, association revenue was very simple — it consisted primarily of membership dues and an annual conference. Over time, for some associations these traditional sources became less substantial and dependable, so many evolved their business models to also create revenue from activities such as credentialing and professional certification programs, as well as online directories, affinity programs, licensing, group purchasing programs, native advertising, publishing diversification or voluntary benefits packages.
These can be wonderful revenue-generating vehicles when they are part of a robust, well-managed portfolio of offerings. When considering such options, it can be useful for board members and association executives to consider how the association’s revenue-generation efforts can help advance its sustainable growth strategy by creating enduring value.
Reactive vs. Proactive Strategies
A productive first step is to determine whether the situation warrants a reactive or proactive approach. A reactive strategy for revenue generation is vital in some circumstances, but as I will explain below, it can’t be the only strategy. To achieve sustainable growth, associations must also be proactive.
Certainly, short-term fixes are necessary from time to time. This might mean recovering from a loss of event revenue due to one underperforming conference. For example, some associations experienced a significant attendance drop for events planned in tropical locations last year due to publicity about the Zika virus. Offering online access to the conference at a cost to those who decided not to travel was an appropriate, reactive measure in that case.
In other cases, falling revenue may be due to a more systemic problem in the association and a reactive approach would be inefficient. Maybe the association has matured to the point where it has achieved high market penetration and may not have many untapped opportunities left to expand their base and generate additional dues revenue. Or maybe failing legacy programs aren’t generating the interest, or revenue, they used to. Associations in these positions may try a wide variety of remediation tactics with the intent to quickly shore up their finances and see what sticks, so to speak. However, if you’re constantly in a defensive position and dabbling in a bunch of areas, you are essentially draining association resources and shortchanging members and your organization’s future in one way or another.
In short, associations may be trying to employ reactive revenue-building tactics as a remedy for what is really a weak value proposition. Getting the value proposition right is a prerequisite for growing — or in some cases stabilizing — existing revenue streams and creating new ones. In these cases, a more forward-looking, proactive solution is required — one in which the association is leading with its strengths and driving its own future.
Long-Term Value Creation
One way to take a proactive approach is by viewing revenue generation in the context of creating long-term value. Boards can consider an association’s unique strengths as a jumping off point for creating and monetizing its value in ways that further leverage existing revenue-generation streams, or even some they have never considered before.
Earlier in my career, I worked for an association where there was a great deal of change happening as a result of industry consolidation and regulation. Association leaders recognized that the industry itself was going to shrink and the association would be at risk if it continued to rely heavily on dues as the dominant revenue source for the organization. Leaders set forth a deliberate strategy of revenue diversification with the objective that in 10 years’ time the organization would not be primarily reliant on dues. The association leaders formed a for-profit research business and made significant capital expenditures to acquire the infrastructure, which included the acquisition of a for-profit learning and development business. A decade later, a mere two percent of the organization’s revenue was represented by dues. That certainly didn’t mean that members over this time period were shorted in any way — in fact, members enjoyed many benefits that were funded by non-members’ purchases of products and services.
This successful sustainability plan illustrates how a proactive, long-term vision of value creation plays into an association’s ability to invest wisely in non-dues revenue growth choices. Regardless of the size of an association’s budget or reserves, embracing the fact that aspects of an association’s model can be approached like a business might be a difficult notion for some. From the board perspective, the challenge is often the mindset of “we are a nonprofit,” or “it’s all about the annual conference.” But that does not mean you cannot design and build business structures that are profitable, enable you to reinvest in other mission-driven initiatives, build your value proposition and create even greater value for your members over the long term.
Some questions boards could pose to determine how they can be proactive in generating non-dues revenue include:
- What unique position can your association hold in your industry, or the world, as it will look in the future? Is there an opportunity to create value that only your association can provide in order to advance your industry and secure your ability to serve members for years to come?
- What are the strongest elements you bring to the table and can those be leveraged in new and different ways?
- Is there a need that your association is — or could be — uniquely poised to fill, for members as well as non-members and the industry at large?
- What are for-profit players doing in your space, and could you do things better?
- Where is your industry headed, and what technologies or education needs will shape your profession’s future? Could you become a research organization, an intelligence organization or an educational platform?
These questions involve strategic, creative and long-term thinking, and a systematic approach that follows the same business methods that companies apply — strategic alignment, market research, due diligence, financial modeling, testing, execution and evaluation. But like any successful initiative, it generally begins with conversations at the highest level of an organization, and a willingness among its leaders to conceive of a vision and take steps to act on it.
||Jim McNeil serves as executive vice president & chief executive of SmithBucklin’s Business + Trade Industry Practice. With more than 30 years of experience working with associations and for-profit companies, Jim leads all aspects of the practice, including strategy, client organization service delivery and performance, new client development, talent development and acquisition, operational excellence, financial management and thought leadership.
FEBRUARY 2017 EDITION
| Board Forward is published 10 times a year by SmithBucklin, the association management and services company more organizations turn to than any other. SmithBucklin has served volunteer board members for almost 70 years.