Financial management is one of the key tasks of an association executive. A consistently healthy financial condition is necessary for the growth and sustainability of an association. Many associations fall in the wayside because their board and/or management do not know or are not familiar with the financial operations of an association that has distinct characteristics as compared to a business enterprise. This is where operating ratios come in:
Nondues revenues (NDRs)—Reliance on membership dues has decreased, so associations are continually looking to develop NDR streams. Simply defined, NDRs are money derived by an association other than membership dues. (Read my column, “Beyond traditional revenue sources,” published on October 5, 2017.)
In the United States, according to a report of the American Society of Association Executives, trade associations’ (whose members are institutions) NDRs look like this: meeting/convention registration fees (10.4 percent); exhibit/trade show booth fees (9.7 percent); certification/accreditation/standardization/evaluation revenue (5 percent); meeting sponsorship revenue (4.6 percent); and educational program fees (4.5 percent). Altogether, these comprise 34.2 percent of trade associations’ total revenue.
For professional societies (whose members are individuals), the NDRs are: meeting/convention registration fees (12.5 percent); educational program fees (7.5 percent); contributions/grants/contracts non-government (7.2 percent); exhibit/trade show booth fees (6 percent); and certification/accreditation/standardization/evaluation revenue (4.7 percent), totaling 37.9 percent of total revenue.
Efficiency—The operating efficiency ratio, represented as a dollar figure, is an organization’s total revenue divided by its total assets. $1.20 is the average amount of revenue associations reported generating for every dollar in assets.
Membership dues—Membership dues are the largest single source of association revenue, but its share has been shrinking over the long term. The extent to which membership dues contributes to an association’s bottom line varies widely by association grouping. The average membership dues revenue as a percentage of total revenue is 41.4 percent for trade associations and 34.2 percent for professional societies.
Net profitability—This is defined as the difference between the organization’s total revenue and its total expenses, shown as a percentage of total revenue. Net profitability as a percentage of total revenue is 0.7 percent for trade associations and 1.7 percent for societies.
Productivity—A good overall measure of employee productivity is total revenue per employee. Keep in mind that total revenue per employee can be distorted by inflation, so use caution when analyzing this ratio over time. The average total revenue associations reported per employee is $216,471.
It would be worthwhile for associations here to refer to these operating ratios and compare theirs to the US benchmarks. This would help them analyse their current financial situation and adopt measures to adjust, improve and innovate.
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The column contributor, Octavio “Bobby” Peralta, is concurrently the secretary-general of the Association of Development Financing Institutions in Asia and the Pacific (Adfiap) and the CEO and founder of the Philippine Council of Associations and Association Executives (PCAAE). PCAAE is holding a mini-conference, entitled, “Show. Shout. Stand Out: Learn Branding, Public Relations, and Communications in a Day,” on July 4 at the Philippine International Convention Center (PICC). The event is supported by Adfiap the Tourism Promotions Board, the PICC, Springtime Design, International PR Association and Writers Edge. E-mail inquiries: @adfiap.org.