Membership Sales is the Crystal Ball for Revenue

The fundamental difference financially between dues revenue and non-dues revenue is that dues revenue is realized over time and not all at once.

Too often association leaders and even membership professionals have the perception that if their membership sales increase, they should see a similar boost in their dues revenues right away. This is only true when the membership model is on a cash basis rather than deferral. In a majority of associations, the membership business model is based on deferred revenue.

When a member pays their dues, the funds are put into the bank in a deferred account. It’s like a savings account. The money sits there until member benefits are fulfilled throughout the year. The assumption is that members will receive monthly installments of benefits and services regardless of what they are. At the end of each month of the membership cycle the association is allowed to transfer the money from the deferred account (savings) into their “checking” account and “realize” it as cash on hand. I call each of these transfers a “chunk of dues.” For each year there are 12 chunks of dues the association is allowed to realize for each member. As new members are recruited and more active members are retained, the organization gets to realize more chunks. When all of those chunks are realized for the month it is that month’s dues revenue.

Now let’s get back to membership sales. When a membership is sold, the first chunk of dues revenue may not be realized for up to 45 days depending on how the membership model is structured. When the sale happens, it will not show up on a dues revenue report right away and when it does it will only be 1/12 that appears on that report. Of course, the more you sell the more that will appear on these reports in the coming months. It’s a great predictor of revenue if you have a solid handle on your retention data (i.e., you can predict approximately how many members will be dropped for a particular month. Although you will still receive dues revenues for that dropped member for the month prior.)

When reporting on membership sales, you report the total amount of dues payment that was remitted to the organization by the new member. For example, for a membership that is $120 per year in dues, you would report $120 in membership sales for that new member. Throughout the year that will appear as a $10 chunk of dues on your dues revenue reports each month of the 12-month membership cycle.

From an accounting standpoint, the deferred revenue model is in place to ensure that memberships that are sold can be refunded appropriately if necessary. For instance, if a member signed up and after 3 months of the membership cycle they decide to cancel their membership, they deserve to receive at least 9 months of membership dues as a refund since they received 3 months of benefits and services already. This prevents an organization from treating the dues payments as cash on hand and possibly spending it before the members have received everything they paid for.

This concept may seem to be “too in the weeds” for membership professionals to share with colleagues and leadership, but it’s important to educate others on how membership truly works and manage their expectations going forward. If you track membership sales and extrapolate it out over the membership cycle, you become the fortune teller for your organization. Remember, the best customers for non-dues programs, products, and services are dues paying members. So strong membership sales and the lifetime value of each of those members are the keys to strong overall revenues for years to come.