Membership Organization Revenue Management and Predictive Analytics
With the onset of the Financial Accounting Standards Board’s (FASB) Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers, (ASC Topic 606) membership organizations face a complex accounting exercise when answering: What value are members receiving?
The value question proves extremely complex when applying the five-step approach outlined in the new revenue standard—specifically, step 4: Allocate the transaction price to the performance obligation.
In some instances, the value of a membership can easily be identified, and may even have a known dollar amount, e.g. the discounted amount on a publication or a conference registration. However, there may be more subjective judgements and estimates involved in assigning value to other benefits, such as access to technical research materials. For example, how much value does a monthly newsletter or publication have, especially when these publications are increasingly being delivered in a digital format, which masks the per-copy cost, or value? Furthermore, variables such as member engagement (i.e. the likelihood that a member will take advantage of a member-only discount on an educational session) complicate the calculation.
For these more subjective benefits, organizations need to assign a probability factor to the discount in order to assign a portion of the membership fee to the related performance obligation, as required by ASC Topic 606. Any amount of the membership fees in excess of the value a member is receiving should be recorded as a contribution under ASC Topic 958.
Revenue Recognition May Pave the Way for More Predictive Analytics
The analysis necessary for implementing the new revenue recognition standard will likely require organizations to make improvements to their reporting systems in order to achieve the necessary efficiency. These enhanced reporting systems make way for more predictive data analytics that will provide deeper insight to positively influence member engagement and utilization of benefits. This includes the ability to: predict return-on-investment on new initiatives or specific programs, assist with pricing for future events, better capture and retain members, and improve financial performance.
Often organizations have no shortage of data, including: web visitors, web engagement, registration lists, survey results, renewal rates and timing, etc. The key is to make meaning out of the data, in real time, in order to bring confidence to decision making and risk taking.
AAFCPAs advises clients to start by identifying the metrics that are integral to measuring engagement and to establish dashboards and other measurement tools to assess these metrics. These metrics may include both financial and non-financial indicators, and will vary by type of membership organization, i.e. museums, professional associations, unions, medical societies, etc.
We find that systems integration, automation, and dashboarding are enabling organizations to accelerate decision making and leverage more ‘real-time’ analytics.
How May We Help?
AAFCPAs advises our regional, national, and international association clients on developing methodologies and inputs to measure member benefit value for purposes of bifurcating membership dues between an exchange transaction (subject to ASC Topic 606) and a contribution.
Additionally, our integrated Business & IT Consulting practice helps clients adapt from soon-to-be obsolete revenue and reporting tools to more state-of-the-art revenue management and predictive analytics platforms.