Sara Wood, MBA, CAE
Sara L. Wood, MBA, CAE, is director, membership and marketing, at the National Court Reporters Association in Reston, Virginia.
What Does Membership Really Cost?
The hard costs associated with membership operations at an association—recruitment, retention, customer service—are easy to identify, but the long-term sustainability of any membership organization also rests on a solid understanding of hidden costs and opportunity costs. Here's a primer on association membership efficiency.
The newly released Membership Essentials: Recruitment, Retention, Roles, Responsibilities, and Resources, 2nd Edition, published by Wiley and ASAE Management Press, just hit bookshelves in March, reminding association professionals of some key basics when it comes to the core function of associations.
One standout chapter centers on finance and how membership teams quantify costs, return, and value in the long term. The tendency in strategy-setting is often to think about the "fun" ideological topics; however, if membership initiatives are to be sustainable, they must be fiscally sound.
Lifetime Value and Cost of a Member
Lifetime value and cost of a member are concepts with which most of us are familiar. Lifetime value of a member (LTV) is the long-term benefit that one member will have to the association:
(dues + average nondues revenue spend) * average tenure = LTV
This equation has been debated in the past since it does not account for things like volunteer time; however, it's a good baseline for determining whether or not to invest in a certain acquisition strategy.
Cost to serve a member can be less straightforward, depending upon how your organization is structured. Generally, there are common hard costs associated with membership recruitment, retention, customer service, and so forth. However, what about the unseen costs of these activities? If we think about a sustainable membership model through the lens of long term, it's worth also looking at how to quantify and evaluate opportunity costs within your project allocation time and staff resources.
Opportunity Cost
To build on the equations and concepts provided in Membership Essentials, it's important to keep the concept of opportunity cost in mind. In other words, what membership activities are we missing out on because all of our resources are tied up in other initiatives? It's not enough just to evaluate hard costs; membership managers need to look at resource allocation to ensure both the efficacy and efficiency of each investment.
What membership activities are we missing out on because all of our resources are tied up in other initiatives?
For example, say a membership team has six campaigns per year. After reviewing the amount of money available, as well as the LTV, the decision is made to move to one campaign per month. On paper, doubling campaigns may yield a slightly higher return through LTV, but there is hidden opportunity cost in this thinking. What if, by asking your existing staff to do double the amount of creative work, the quality of each of those campaigns suffers and overall yield goes down?
Whenever a strategic decision is made, there is an opportunity cost of what the alternative route would have been. There is an opportunity cost of putting all of those new resources into the original campaign; there is also an opportunity cost of putting those resources into the monthly strategy. The question is: Which cost is higher?
Evaluating Opportunity Costs
- Find the initiatives with the highest return. Take the time to track the data from all of your membership campaigns and determine which ones have the highest return. Don't forget to evaluate not only cost but also the staff time it takes to execute. Questions to ask yourself: Is this a significant time investment or small time investment? What is the returned margin for both the fiscal year and the LTV?
- Evaluate the true capacity of your team. One constant problem in association management is the tendency to keep piling projects onto the same group of people. Considering the nature of most association staffers, everyone generally rolls with the punches when this happens. However, the law of diminishing returns applies to your staff's capacity. The larger the pile of work, the lower the quality. When evaluating staff time, this resource can be elastic, but it is finite.
- Stop activities that have lower return and burn out the team. After evaluating effectiveness and resources, eliminate projects that have a lower yield and reinvest time and energy into those with a higher yield.
A follow-up to this article, coming later this year, will take a closer look at how to evaluate your programs for not only your membership team but also your entire organization. Stay tuned.