04/2008nucleus- considerations about the membership fee system of business associations and...

04/2008 Nucleus-International.net 1

Considerations about the Membership Fee System of Business Associations

and Chambers

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Criterions for a Membership Fee System

• It must be "fair"

• It must generate sufficient financial means to finance a big share of the costs of the lobby and service work of the business association


What is "fair" ?

• Membership fee system A :

1 member 1 vote 1 membership fee amount

• Everyone pays the same amount !The system is comparable with a "Poll Tax"


• Under which conditions is this membership fee system efficient and fair?

• All members are more or less equal– same size of the enterprises– same number of employees– same turnover and profit

• In this case an identical amount as membership fee is fair, efficient and easy to manage


• But what is when the member enterprises differ very much ?– different size– different number of employees– different turnover and income

• In this case the same membership feeis "unfair" and not efficient


Example

• The membership fee is for all members 200 $ per year– a bigger enterprise with 200 employees

pays consequently 1 $ per employee– a small enterprise with 5 employees pays

consequently 40 $ per employee• The burden through the membership

fee is for the small company 40 times higher than for the bigger company !!!


• This membership fee system has the effectof a barrier in order to keep out unwanted entrepreneurs, especially SMEs,from the business association

• It is efficient for "Business Clubs" where selected "right" entrepreneurs want to remain among themselves


What is "fair" ?

• Membership fee system B: “Tier System”

The membership fee amount reflects the economic differences between the members :Bigger companies pay a bigger shareSmaller companies pay a smaller share

• The financial burden through the membership fee is more or less equal for all members


The main questions …

• Which criterion to use ?

• How to define adequate categories ?(groups of member enterprises


The problem …

• The more complex the membership fee system is– criterion : reliable access to data

and control – categories :many– exemptions : many

the more difficult it is to manageand the more it invites the members to manipulate their data


Criterions linked with the economic power of the member

• Direct criterions– Turnover– Profit– Income tax payment

… but entrepreneursdo not like to publish

financial data …

… therefore normally not

recommendable!

… in addition : during an economic crisis the incomeof the chamber can decrease dramatically …


Criterions linked with the economic power of the member

• Indirect criterions– Number of employees– In case of a sector association :

- Quantity of production or- Quantity of sold products

Usuallynot business

secrets

… therefore normally

recommendable!

The relatively stable employment of the enterprises guarantees a more secure income for the chamber


Categories of members

• A membership fee system without categories– X1 $ per $ turnover / profit or

X2 ‰ from the turnover /profit– X3 $ per employee

• Advantage : – Very exact and fair

• Disadvantage : – Causes much administrative work

because of permanent changes of the data to be queried


Categories of members

• A membership fee system with categories– X1 $ for turnover / profit up to T1 $

X2 $ for turnover / profit between T2 and T3 $

– X3 $ for up to a employeesX4 $ for between E1 and E2 employees

• Recommendation :– maximally 10 classes

• Advantage : – Causes limited administrative work

because the data do not vary that much


Example for a tier membership fee system per number of employeesCate

-gory

Employeesbetween

Fee Fee per employee

max. – min.1 1 - 4 20 $ 20 $ – 5.00 $2 5 - 9 50 $ 10 $ – 5.60 $3 10 –19 100 $ 10 $ – 5.30 $4 20 – 39 200 $ 10 $ – 5.10 $5 40 – 79 400 $ 10 $ – 5.10 $6 80 –159 800 $ 10 $ – 5.00 $7 160 – 319 1,600 $ 10 $ – 5.00 $8 320 – 619 3,200 $ 10 $ – 5.00 $


Differentiation between sectors

• Perhaps it is necessary to differentiate between companies per sector – industry, agriculture, service– commerce– bank

• They produce with the same number of employees considerable different economic results


Example for a membership fee system per employees and sectorCate

-gory

Employees

between

FeeIndustryService

FeeCommerce

FeeBanks

1 1 - 4 20 $ 100 $ 200 $2 5 - 9 50 $ 200 $ 400 $3 10 –19 100 $ 400 $ 800 $4 20 – 39 200 $ 800 $ 1,600 $5 40 – 79 400 $ 1,600 $ 3,200 $6 80 –159 800 $ 3,200 $7 160 – 319 1,600 $8 320 – 619 3,200 $


Registration fee

• When is a registration fee reasonable– Members invest in costly infrastructure for

their own benefit– A new member, who wants to use it, shall

later adequately participate in its financing• Examples :

– Social and sport clubs, i.e. tennis, golf, etc.


Registration fee

• What is the purpose of a registration fee of a business chamber or association– Except eventually an office building it does not

have and need a costly infrastructure, because its tasks are lobby and service

– It does not need a registration fee !!!• Registration fee charging chambers

– Create an additional barrier around themselves– In order to keep entrepreneurs out !!!


… but the logic of chambers is to be

attractive for more entrepreneurs

ServicesInformation / Consultation

Training / Support

Lobby in front of Government and other groups of the

society

Higher attractiveness for Entrepreneurs

Law of great number:the more members, the more influence

Chamber

More Entrepreneurs apply for membership

More members pay more membership fees

More means to finance more and

better services


Registration fee

• Consequently, a registration fee for new members is

highly contra-productive for the development of a chamber !!!

Note: Many chambers and associations do not know registration fees.


Some tricky points …one entrepreneur, more companies• In some countries, entrepreneurs like

to run a couple of smaller companies than one bigger one due to tax, organisational or marketing reasons. As economically thinking persons they enter into the chamber only with one of these enterprises, preferably with the smallest one, using the lobby and service work for all of them.Not good for the chamber! What to do?


Some tricky points …one entrepreneur, more companies

– The best : They enter with all individual companies into the chamber

more members, more fees

– The 2nd best : They enter with all individual companies and get x% discount for the 2nd, y % for the 3rd, etc., company

more members, still more fees


Some tricky points …one entrepreneur, more companies

– The 3rd best : They enter with one company, but for the calculation of the membership fee is used the sum of employees of all companies

not more members, but more fees

– The 4th best : They enter with their biggest company, not with the smallest

not more members, little bit more fees


Some tricky points …What is an "employee" ?

• Especially in SMEs, but sometimes also in bigger companies, the question about the number of employees is sometimes unclear and difficult to answer :Who is counted as "employee"?

• The answer can have a considerable effect on the chamber's membership fee income– (Observation: therefore, statistics often give a

wrong image about the employment situation)


Some tricky points …What is an "employee" ?

Persons in the company Employee ?Entrepreneur noFamily member noEmployee, monthly paid yesWorker, daily paid yes / no"Helper", apprentice, trainee yes / noFormally subcontracted persons but in reality dependent workers

no


Some tricky points …What is an "employee" ?• Therefore, it might be better to ask for the

persons, working in the company

inclusive– the entrepreneur– the family– monthly and daily paid employees and workers– apprentices, trainees, others– subcontracted persons working only for the

company


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