Diversified Revenue
A Practical Guide to Balancing Innovation and Risk
Summary
“Wealth flows freely to those that channel it from several sources. Multiple income streams breed ample avenues of redundant abundance.”
Robert Greene
Diversified revenue is a sign of financial health. It is an outgrowth of deeply understanding who our members are (their pain points or problems to be solved) so we can create the right value to anticipate, meet, and exceed their wants and needs.
There are lots of ways to diversify: in membership, in engagement, or in offerings. All of these play a role in this article’s focus: the role of value creation or product development in diversifying revenue.
Diversified revenue with a diverse product portfolio meets the needs of a diverse membership community while reducing risk. More importantly, it shifts the value conversation from traditional benefits (often signified by content, discounts, or professional networking) to a deeper form of connection.
Associations are hemmed in by their reliable cash cows (events and membership). The problem? The cash cows drive both the conversation and the culture, forcing safe choices and making it increasingly difficult to try new things. I'd like to see associations move toward at least four healthy, diversified sources with the top two not adding up to more than 60% of revenue. This way we allay risk, reach new markets, and open ourselves up to new ways to be creative and innovative.
I lead the product community, which is a product development learning community designed specifically for associations.
The Importance of Diversified Revenue
“Managing a portfolio is like managing a garden. You don’t just want different kinds of plants in your garden. You want those different plants to have synergy and to work together harmoniously to maximize productivity.”
Hendrith Vanlon Smith Jr.
There are several reasons why diversified revenue is are crucial for membership organizations:
Financial sustainability – Relying on a single revenue source, such as membership dues or grants, can make an organization vulnerable to economic fluctuations, changes in funding priorities, or shifts in member preferences. A diversified revenue model ensures a more stable financial foundation and reduces the risk of disruption to the organization's operations and mission.
Independence and autonomy – Over-reliance on a few major revenue sources can compromise an organization's ability to make independent decisions and set its own agenda. Diversified revenue streams provide greater autonomy and flexibility to pursue initiatives that align with the organization's values and priorities, rather than being beholden to the interests of a small number of funders, stakeholders, or members.
Innovation and growth – With diverse revenue, organizations can invest in new programs, services, or initiatives that support their mission and meet the evolving needs of their members or constituents. A lack of diversification can limit an organization's ability to innovate, adapt, and grow over time.
Resilience and risk mitigation – Diversified revenue helps mitigate the impact of potential downturns or disruptions in any single revenue stream. If one source experiences a decline, the organization can rely on other sources to maintain its operations and continue serving its members or stakeholders.
Alignment with mission and values – Purpose-driven organizations often have a diverse set of stakeholders with varying interests and needs. A diversified revenue model allows the organization to align its offerings and revenue sources with the diverse priorities of its members or constituents, strengthening its relevance and value proposition.
Strategies to improve revenue diversification depend largely – though not exclusively – on the existing portfolio. Most associations rely on two cash cows: events and membership. The third area is often non-dues revenue related to learning: educational programs, certifications, sponsored content, research services, consulting or advisory services, and corporate partnerships or sponsorships.
Here are several ideas for diversifying your association’s revenue (sourced from previous articles I’ve written for this newsletter):
New product development – Ten Product Ideas: A Guide to New and Diversified Revenue for Associations
New markets – Where to Play: Maximizing Our Reach By Defining The Association Playing Field
Engaging the youth market – Engaging Young Professionals
Learning pathways – How to Create a Learning Pathway: An Outcome-Based Approach to Deeper Connection and New Revenue
Productized services – New Recurring Revenue: A Guide to Productized Services
Modules – Bite-Sized Learning: Professional Development for the Super Busy
Cohorts – How to Create a Learning Cohort: Grow Membership by Creating Belonging
Extending the annual meeting – How to Productize Your Annual Meeting: A Practical Guide to Optimizing and Extending A Cash Cow
It should go without saying that these or any other revenue-generating activities should align and remain consistent with your organization's mission, vision, and values. The best revenue serves, extends, or deepens your association’s purpose.
By carefully balancing and diversifying revenue, associations can maintain financial stability and independence while investing in innovation to effectively serve members, learners, stakeholders, or donors over the long term. Let’s now look at what an ideal revenue breakdown might look like.
An Ideal Breakdown for Diversified Revenue
“Tidy your business by looking at your product offerings and categorize them by putting them into value grade buckets.”
Richie Norton
There is no definitive ideal revenue breakdown for associations, as it depends on various factors such as the organization's size, industry, membership base, and strategic objectives. However, it is generally recommended to have a diversified revenue model with multiple streams to meet evolving member needs, mitigate risk, and ensure long-term sustainability.
A typical ballpark revenue mix for most associations is ~25% membership, ~60% events, and ~15% everything else (i.e. learning, affinity, partnerships, etc.). It looks something like this:
I argue we need to be much more diversified. Here's a suggested revenue breakdown for associations aiming for revenue diversification:
Membership Dues: 30-40% – While membership dues should no longer be the sole or dominant revenue source, they often remain a significant contributor to an association's overall revenue. This range ensures a stable base while allowing for diversification.
Events and Conferences: 15-25% – Events and conferences can be a substantial revenue generator for many associations. This range allows for a meaningful contribution without over-reliance on this stream, which can be subject to external factors.
Education and Training Programs: 10-20% – Offering educational programs, certifications, and professional development opportunities can provide a recurring revenue stream while aligning with the association's mission.
Publications and Digital Content: 5-10% – Selling publications, reports, online resources, or subscription-based content can leverage the association's expertise and knowledge.
Sponsorships and Advertising: 5-15% – Sponsorships from corporate partners and advertising opportunities can contribute to revenue diversification while providing exposure and potential benefits for members.
Consulting and Advisory Services: 5-10% – Offering consulting or advisory services can monetize the association's subject matter expertise and provide value to members and industry stakeholders.
Grants and Donations: 5-10% – While grants and donations should not be the primary revenue source, they can support specific initiatives or programs aligned with the association's mission.
It's important to note that these percentages are rough guidelines, and the ideal breakdown may vary based on the association's specific circumstances, resources, and strategic priorities. Associations should aim to have at least five distinct revenue streams to achieve true diversification and reduce risk.
The key is to strike a balance between multiple revenue sources, continuously evaluate and adjust the mix as needed, and ensure that each stream aligns with the association's mission, values, and the needs of its members and stakeholders.
Best Practices for Diversified Revenue
“Don’t put your eggs in one basket.”
Miquel de Cervantes
Here are some best practices for diversifying association revenue:
Conduct a thorough market analysis – Understand the needs, preferences, and willingness to pay of your members and target audience. Identify potential gaps in your current offerings and explore new revenue opportunities that align with your mission and provide value to your stakeholders.
Prioritize mission alignment – Ensure that any new revenue stream or product offering is consistent with your organization's mission, values, and overall strategic direction. Avoid pursuing revenue sources that could compromise your organization's integrity or reputation.
Leverage existing assets and expertise – Look for ways to monetize your organization's existing assets, such as intellectual property, data, research, or expertise. Consider productizing your services or developing online courses, certifications, or training programs based on your unique knowledge and experience.
Explore strategic partnerships and collaborations – Identify potential partners or complementary organizations with whom you can collaborate to develop new revenue streams or co-branded offerings. These partnerships can help you access new markets, share resources, and enhance your value proposition.
Implement a pricing strategy – Develop a well-defined pricing strategy for your new revenue streams, considering factors such as perceived value, market demand, competitor pricing, and your organization's positioning. Consider offering tiered pricing or bundled packages to cater to different member segments.
Invest in technology and digital capabilities – Embrace digital technologies and platforms to enable new revenue streams, such as online events, webinars, digital publications, or subscription-based access to resources or tools. This can help you reach a broader audience and scale your offerings more efficiently.
Continuously evaluate and refine – Regularly review and analyze the performance of your revenue streams, gathering feedback from members and stakeholders. Be prepared to adjust or discontinue underperforming offerings, and continuously explore new opportunities for revenue diversification.
Build a dedicated team or resources – Depending on the scale and complexity of your revenue diversification efforts, consider allocating dedicated resources or creating a team focused on developing, implementing, and managing your new revenue streams.
Communicate transparently – Maintain open communication with your members and stakeholders about your revenue diversification efforts. Explain how new revenue streams support your mission and benefit the organization and its members.
Maintain a balanced portfolio – Aim for a balanced and diversified revenue portfolio that reduces reliance on any single source. Regularly assess and manage the risks associated with each revenue stream to ensure long-term financial sustainability.
By following these best practices, associations can successfully diversify revenue, strengthen financial resilience, and enhance their ability to deliver value to their community while remaining true to their mission and values.
Diversified Revenue is an Outcome
“Hedge your bets.”
George Villiers
Undiversified revenue is an enormous risk. It makes it hard to capitalize on new ideas or prepare for an increasingly unknown future. However, possibilities abound for turning the corner. I recommend you start here: Ten Product Ideas.
But remember: people don’t want more stuff.
Diversified revenue does not mean throwing new spaghetti at the wall to see what sticks. It’s about creating relationships and forging deep empathy with members and creating the right value to keep them coming back for more.
Diversified revenue means doubling down on what makes our members tick:
Where do they struggle?
What are their pains?
What problems do they need to solve?
What makes them happy?
What makes their lives better?
Diversified revenue with diverse offerings will meet the needs of a diverse member community. More importantly, it shifts the value conversation from traditional benefits to a deeper form of connection.
I lead the product community; we are a learning community because we believe great relationships help us create the value our members want. Remember, product-led growth fuels connection. Join the product community and flip your destiny.
About the Author
James Young is founder and chief learning officer of the product community®. Jim is an engaging trainer and leading thinker in the worlds of associations, learning communities, and product development. Prior to starting the product community®, Jim served as Chief Learning Officer at both the American College of Chest Physicians and the Society of College and University Planning. Please contact me for a conversation: james@productcommunity.us