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Trade and professional associations of all sizes and types are taking a fresh look at their dues structures and corresponding benefits allocations. With lean budgets and members clamoring for more value for dues, many have been faced with the stark realities of revising their dues systems--lifting caps or creating new membership categories to accommodate new types of members--or thinking about merging with other associations or forming strategic alliances.

When associations consider reworking their dues structures, both staff and volunteers need to revisit the basics: the typical characteristics of dues, how they are classified, and the various bases on which they are priced. Additionally, they must understand what key factors must be used in determining the dues structure and what pitfalls may be encountered in modifying it or establishing a new structure. Finally, they must be prepared to communicate the new structure in such a way that members completely understand and buy into the change.

Equity: Finding the Right Common Denominator

The major reason associations have dues in the first place is to provide a fair basis for members to make an equitable contribution to the survival and growth of the association. We must weigh a variety of factors when establishing or changing a dues base or rate so that all members in all categories and classifications are treated equally. Because of this, it is difficult to redo a structure that has been in place for some time, as the association has to have a very good reason and then must explain that reason to the members in such a way that they understand that there is a need for a new equity basis to be used.

First and foremost, a good dues base provides equity among all classifications of members. If a dues base has nothing else but equity, it will likely satisfy most major objectives of the association.

Equity indicates that each member of the association will provide a financial contribution that is his or her fair share, according to the revenue and expense breakdowns of the association. Along with this goes the philosophy that larger members within the association will pay a larger "fair share" than smaller members. Within many trade associations, you see a graduated dues base in which larger members share more of the financial burden while enabling the association to broaden its base with a variety of smaller and midlevel members.

This concept must be clearly explained to larger members who grumble that they pay too much in proportion to smaller members. In fact, it is the responsibility of the larger members to sustain the financial base of the association, and the responsibility of smaller members to maintain their membership, whether or not most programs or services are directly aimed at them. Each class of members suffers to some degree for the good of the overall industry.

Conversely, some associations have a single fee paid by all members, regardless of size, based on the products and services offered by the association. Other associations provide a significantly better benefits package to larger members, who pay more, than they provide to smaller members, who pay less.

As long as the association and its members understand the basis of the dues and feel that it is equitable to all members based on the vision, mission, goals, and objectives of the association, most members should be satisfied.

After equity, it is most critical to find a common denominator to measure members' financial contributions. This is simpler when all members are in the same line of business and do the same things. However, when the association is made up of several vertical marketplaces, it becomes more difficult. In these cases, the association must develop a common denominator for each category of member, and at the same time, ensure that all types of members are being treated as equally as possible.

Finally, the association must ensure that the amount of dues that it charges, in combination with its nondues income, has the ability to support association operations and provide approximately a three to six percent yearly contribution to reserves. It is critical that the association carefully examine the ratio of dues to nondues income it expects to maintain in its infancy--and also at maturity--so that members are paying neither too much nor too little to support the association based on the entire product line that it sells to its members and other constituencies.

The Role of Member Categories

The dues structure that the association chooses is determined to a great degree by its member categories. If there is only one category of membership, the dues base can be easily put in place by using a common denominator from the industry or other criteria as described below. However, with a variety of membership categories, the association may need to establish a different dues base for each that provides for an equitable contribution by all.

Most associations will charge different dues for different categories of members. For example, many charge service providers (companies that sell goods and services to active members) higher dues than they charge other classes of members. Service providers understand this principle; they understand that they have an obligation to support the active members in their pursuits in order to make sales and provide services to them.

Associations can mix and match dues bases as long as they do not mix and match members within the category. For example, in most instances, associations that have service-provider memberships should not provide these memberships on an individual basis if they also provide for them on a company basis. If there is a service-provider company category, then an individual from a service company should not be able to join the association as an individual member. Rather, the service-provider company should be afforded the opportunity to have several members join at reduced rates as part of its organizational membership. On the other hand, if the association does not wish to provide for a service-provider company membership, but rather would like to have a service-provider individual membership, then they could establish that membership for all service providers, regardless of company size.

Choosing a Dues Base

There are a variety of dues bases currently used by associations:

• Total revenue;
• Total sales;
• Percentage of sales;
• Flat or fixed rate;
• Units of production;
• Number of employees;
• Units of equipment;
• Number of plants;
• Pounds of product;
• Total assets;
• Square root of assets;
• Percentage of assets;
• Payroll;
• Salary;
• Total income.

Far and away the most common or popular dues basis is a fixed- or flat-rate dues base, which is used by more than half of all associations. The next most popular is a combination of either a percentage of total sales, revenue, and assets (or the total of one or more of these categories) followed by number of employees and units of production. As indicated above, it really makes no difference what base the association uses, as long as all members feel it is fair and equitable to all members within a category and to all categories collectively.

In individual and professional societies, the flat or fixed rate is more equitable, because the member is joining as an individual and not as part of a corporation. Although many of the benefits help the individual and the company, the association's program is focused on the individual.

On the other hand, many trade associations use a percentage of sales/revenue/assets or number of employees and units of production. This provides the association with an opportunity to develop a sliding scale, which can then help smaller members join and larger members subsidize operations. It also allows for dues to be amended with cost of living factors over time and helps fight the concept of a dues cap.

Additionally, basing dues on sales and units of production allows for a flexible dues base that will reflect the changing nature of the economy. As things go well for member companies, the association will realize more dues dollars and thus prosper with the industry.

Eliminating the Need for Caps

Once the association has established the dues base, it must decide what amount of dues it should collect. In looking at this, the association must run a variety of test formulae to arrive at a rate that is equitable for each category of membership and, at the same time, provides the association with the nondues income necessary to maintain operations. This figure is usually arrived at through trial and error.

For example, if the association knows that it will take approximately 20 staff plus overhead to accomplish the association's mission and that $500,000 in nondues income can be brought in from publications, conferences, and so forth, then it can stratify that $1.5 million shortfall among the membership categories to find a fair dues assessment.

One pressing issue many associations face with regard to dues rates is that of industry consolidation. Mature associations would be wise to eliminate or lift dues caps by adding categories to the highest dues levels that take into consideration the variety of mergers and consolidations occurring today. It is not uncommon to find huge, multiconglomerate corporations that have several divisions devoted to an association's program of work.

Your job is to ensure that all conglomerate subsidiaries are each paying their fair share based on their value basket of association products and services. Currently, associations are struggling to create unique dues structures for these behemoths, as they often pay a maximum dues rate that is not equitable compared with that of other members. To handle this dilemma, an association clearly has three choices.

The first choice is to remove the caps and create several additional membership categories at the top of the tier, for which the association could then set a fair dues rate for multiconglomerates. Or it can develop a separate dues category for multiconglomerates and attach dues price tags to number of offices, number of satellite locations, number of subsidiary corporations, or total revenue/production of each of the conglomerate's entities that deal in the association's industry.

The second choice is to keep its current structure and apply another dues rate on top of the highest bracket.

The third choice is to use a little-used rate called the "square root of assets or total revenue." Using this formula, once the median is found, the rate goes up equally for all categories until the larger asset company's revenue hits the scale and then goes up gradually (by approximately one third, as opposed to doubling the rate). This has the effect of making larger companies pay more, but not at double or triple the rate as assets rise through mergers and acquisitions (see sidebar, "Squaring Off Your Dues Structure," for more information). So, they pay more, but not in proportion to smaller units, and caps can be avoided.

The key point in setting dues for multiconglomerates is that only the revenue and sales that apply to the industry--not the conglomerate's total sales and revenue--should be included in the dues formula. Additionally, associations should endeavor to back out product and inventory they provide to other association members down the wholesale/retail chain. This holds true as well for the retail segment, which should back out sales to members. There are a variety of nuances to this aspect of association dues operations, and the association should seek the advice of a dues structure specialist when juggling these issues.

Telling the Truth

Most members across industries are honest in reporting their dues. There may be some fudging between a level or two; however, members understand the obligation to the association and feel the peer pressure associated with this reporting. In benchmarking a variety of trade and professional associations thinking of changing structures, we have found that approximately 80 percent of members report their dues accurately or somewhat accurately. This leaves 20 percent who, for a variety of different reasons (including simple misunderstanding), do not.

Given this circumstance, associations should not worry about whether members will accurately report their dues when establishing their structures. Unless you have a unique situation (and they do exist) and must rigorously enforce your dues structure for legal reasons, don't waste time and energy creating complicated enforcement policies that are really unenforceable.

Spreading the Word

Many associations fall down when communicating their dues structures to stakeholders. Oftentimes, they fail to make the vital quantitative as well as qualitative link between dollars in dues and services and benefits and programs provided.

Associations must find the quantitative value of the services provided and the unique communications delivery vehicle that will hit the radar screens of their members. The resource list (see sidebar on this page) will provide insight and solutions to this problem.

In the meantime, ensure that your dues program

• Is research based;
• Encompasses representatives from all stakeholder segments;
• Uses a common denominator unit of measurement for its basis that members easily recognize and understand;
• Is tied to quantitative and realistic products and services provided;
• Is communicated early and often during the discernment process.

Using the information above, associations can make intelligent decisions about their dues formulae and ensure all stakeholders are on board when a change takes effect.

Stephen C. Carey, Ph.D., CAE, an examiner for the Malcolm Baldrige National Quality Award for Performance Excellence, is the president and lead strategist for Association Management & Marketing and Resources. AMMR is an association management consulting firm specializing in strategic and marketing planning, assessments, restructurings, and research. He can be reached through the AMMR website at www.ammr.com.

Related Sidebar:

More Articles From Associations Now, March 2007

  Better Thinking for a Better Tomorrow

  Charting Your Course

  Feedback Without Fear

  All in the Family?

  A Piece of Good Advice

  Paying Their Dues

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