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Association Management Company 101

There are a lot of truths and misconceptions about association management companies. Deciding which association management company to choose could mean the difference between being a good nonprofit and a great one. The fit is critical and the time spent on the selection process invaluable. The following are some key items you should know as it relates to association management companies:

Types of association management companies:

  • There are more than 800 association management companies
  •   Each association management company employees one individual to more than 500 professionals
  •   Every association management company has either a specialty (i.e. healthcare, agriculture, etc.) or provides services to all types of associations
  • One or several individuals own all but a handful of association management companies. A select few are involved in an employee stock option plan and the company is either entirely or mostly owned by individuals

How association management companies charge for service:

  • A fee based upon hours after a review of the association/nonprofit’s scope of work is one common way to estimate a management fee
  •  A fixed fee management fee is one where the scope of work is reviewed and the fee is fixed for either one year or throughout the contract
  •  A mixed fee management fee is one where there is a base management fee with an hourly fee component built into the management fee (typically the fixed fee is billed monthly and the hourly fee is calculated monthly and billed monthly)
  •  A fee based upon the revenues of the association (for example, the first $1MM in revenues is billed at 25% anything above $1MM is then step-billed)
  •  A fee based upon net profit (for example, 50% of net profits are paid to the association management company)
  • Other variations exist but the most common are listed

What is the best Association management fee model?

  • There is no “best” model, it is based upon what the risk  tolerance level of the association/nonprofit is
  •   Hourly fee models tend to employ the highest level of risk as there is a tendency for associations to “spend” more hours than they have allocated
  •  Fixed fee model employees the lowest level of risk but at times can underestimate the resources necessary for the association/nonprofit’s scope of work
  • The mixed fee model is one that is gaining traction and has an appropriate level of risk for a association/nonprofit organization
  •   There is a difference in hourly billing that needs to be recognized and accounted for during the process (i.e. two management fees may look identical but the number of hours allocated is very different due to the association management company’s hourly rates)
  •  Hourly rate variations are healthy as long as the professional allocated meets the job’s needs