There are three common ways that associations are managed. Some are managed by volunteers. This is most common in small, start-up associations and usually gives way to non-volunteer management as the association grows. Many associations are managed by full-time staff employed directly by the association. Perhaps the most common of all forms of management, there are thousands of associations employing their own staff. The third method of management is for the association to contract with an association management company (an AMC). I should mention that there are hybrid models that mix elements of these three, but these three approaches are the most common.
For an association to be managed and managed well by volunteers requires an unusual set of circumstances to come together. First, the association has to be small enough that the required amount of work can be handled by volunteers. Second, there has to be available a number of people who have an abiding commitment to the association and who have the talent necessary to do the work required. Usually, there is one key person with a passion for the organization who drives the volunteer effort. Since the financial considerations around management is the thrust of this article I will say right up front that as long as you can get volunteers to manage your association and as long as they do a good job, if you want the cheapest management alternative you can’t beat free! However and as I alluded to earlier, volunteer management is usually not a permanent solution for a growing, successful association.
So, association leaders most often have to make a decision between hiring their own staff, contracting with an association management company, or some hybrid model using some of both. If financial considerations are a key ingredient in that decision, then do you ask which model is less expensive or do you ask which offers the better value? I believe that for many associations the AMC model is both.
In a survey commissioned by the Association Management Company Institute (AMC Institute, 2011) the survey respondents reported that the median management fee paid by client associations to their AMC constituted 34% of the association’s total revenue. These data were compared with expenses reported by associations employing their own staff as reported in the American Society of Association Executives (ASAE) Operating Ratio Report. (ASAE & The Center Industry Reseaerch, 2008) The expenses of the associations that employed their own staff that would have normally been included in a management fee – i.e. salaries, benefits, occupancy expenses, IT functions, office equipment, depreciation, etc. – totaled 45% of revenue. Thus, the respondents in that survey were saving 11% of their revenue when compared with groups hiring their own staff and having to provide benefits, work space, office equipment, etc. for them.
But being less expensive is only a part of the story. A typical association needs at various times expertise in strategic planning, administration, membership services, database management, website development, publications management, financial management, meetings management, and more. It is impossible to find all those skill sets in one individual, and a small association would not be able to hire people with expertise in all those areas. However, a small association can find an AMC with all that expertise available within its staff, and the AMC can allocate just the amounts of staff time needed in each of those areas to the organization. Thus the value in expertise that can be provided by an AMC is far more than just the cost of management staff alone.
But my final and perhaps more important question is this: Is it all about the money? The very nature of “non-profit” organizations argues that the real motivation of the organization is not to maximize its earnings, but is to accomplish its mission. I will have more to say about how an AMC can help an association accomplish its mission in my next blog post.