How 14 association publications make money.

Is publishing a recurring magazine or newspaper a profitable undertaking for an association? Of those that make money, how much do they make? And, where does the revenue come from - ads, subscriptions, funds transferred from membership?

IABC conducted a survey about a year ago to discover just how many association publications operate in the black - or make money after expenses are deducted from revenues. The results showed that four out of five lose money (April 1991 CW.

But that study raised new questions about the one publication out of five that does make money for its association.

We conducted a follow-up study of just those publications that reported a net profit. We asked how they became profitable, and how they plan to stay that way.

We looked at a fairly small group 14 publications - so the results can't be projected to apply to all association publications. But, we can draw conclusions from these 14 publications that suggest patterns of profitability that astute publishers and editors can adapt to their own situations. we discussed in the first study, it helps to be in a high-profit industry - like health care - where there's a well-defined, sought-after audience. It also helps to be the dominant book in your market. And, if you work for an association that has a term like financial management in its name, that seems to create a favorable mindset for all involved. Finally, most of the profitable publications we studied make judicious use of desktop publishing and other measures to monitor and cut costs.

But beyond a few similarities, the profitable publications surveyed have many more differences. What they shared was a commitment to profitability ... and success in getting every member of the staff to buy into that commitment.

Kevin Kridle, publication and ad director at Healthcare Financial Management Association, Westchester, Ill., expressed his prescription for profitability this way: "You must make a commitment to get into the publishing business ... to get into the advertising business."

Kridle's publication turned in a U.S. $231,173 net profit last year.

Another respondent, whose publication reported a $24,952 profit, said, "Our magazine is now in its sixth year, becoming profitable in its third year. We started with a financial plan, with profitability as part of its evolution."

That commitment to profitability seems as much as anything to make the difference between profit and loss in the association publishing business. But here are some of the other similarities and differences in the 14 profitable publications we surveyed.

The top moneymaker in our survey returned more than half a million dollars ($525,000) to its association in the 1989/90 fiscal year. Not bad for an outlay of $4,500 in ad promotion costs. That $4,500 included mailing to prospects, and "marketing to lists of clients in related fields." (This publication is in the health care field.) If you haven't considered marketing your publication to people in related fields, you might want to emulate this clear leader in income generation in the association publishing business.

How much revenue do these profitable publications produce? Well, from a high of $525,000, responses ranged to a low of $7,816. In our small sample, the spread of profitability was wide, although evenly distributed among the 14 publications. The array of the 13 publications that answered the net profit survey question looked like this:

  Net Profit
   Over $ 100,000            3
   $50,000 - $100,000        3
   $20,000 - $50,000         4
   Below $20,000             3

Eight of the 14 publications surveyed receive income from shifting dollars from the membership department to the publication budget. \Wile the paper swap of funds serves to compensate the publication for its role in helping market association memberships, it does not bring new money in the front door. It does, however, improve the publication's bottom line.

Most publications surveyed received less than 20 percent of their total revenue from the transfer of funds from membership. Only one received 95 percent of its revenues from the transfer, and five received no revenue. Publications get their revenue from ad sales Most publications surveyed received most of their revenue from ad sales (12 of the 14 surveyed). Only one received most of its revenue from subscriptions. And, we've already mentioned the one that got most of its revenue from membership funds transfer. How much do they charge for ads? One-time black-and-white page rates ranged from a high of $3,350 to a low of $300. The majority have a page rate below $1,000 (seven respondents). Five have a rate above $2,000, and one has a rate between $1,000 and $2,000.

The publication with the highest net income ($525,000) has a one-time black-and-white page rate of $630 and receives 97.5 percent of its revenue from ad sales. What's the commission rate? The most common commission rate for ad sales forces was 15 percent. Seven out of the 14 respondents chose this number. Two respondents pay 20 percent, and one pays 30 percent.

Two publications paid no commission, but one of those receives most of its revenue from subscriptions. The other, however, receives 95 percent of its revenue from ad sales. We assume in this case that ad sales are generated from an on-staff, salaried ad sales person. Do ad sales come from clients or through agencies? Our earlier survey disclosed that ad sales were conducted in about equal numbers by in-house sales forces and outside reps. Neither group had the comer on producing profits for the publications.

In this survey of just the profitable books, four out of five publications that had the lowest net profit sold their space directly to clients rather than through ad agencies. One notable exception, however, was the magazine reporting the highest net profit $525,000).

The publications reporting the highest net profit indicated that they got most of their business through ad agencies. How big are promotion budgets? How much does an association magazine have to spend to make a profit? Unfortunately, not much of what we learned from the 14 profit-making publications surveyed helped answer that question. Promotion budgets seemed surprisingly small (perhaps early victims of the recession). Of the 14 publications surveyed, only four had ad promotion budgets over $10,000, although one other stated $9,000 plus postage. The biggest promotion budgets with their respective incomes are ranked below:

  Ad Budget             Net Income
      $50,000              not given
      $32,000               $231,173
      $30,000                $99,400
      $22,000                $56,000
       $9,000 + postage      $79,255

The remaining six publications that answered the question (three of 14 didn't) reported ad promotion budgets of less than $5,000. One reported a budget of zero. The other five ranged from $500 to $4,500.

The top income producer $525,000 - had an ad promotion budget of $4,500. Now that's return on investment. How they made their publications profitable In simplest terms, profit can be improved two ways: by lowering costs or by raising revenues. Our survey unearthed some unusual examples of each. First, on increasing sales:

Rob Delf, associate executive director of the Multnomah Financial Management Association (MFMA) in Portland, Ore., prides himself on doing things a little differently, and his approach to publication ad sales is anything but routine.

For example, Delfs in-house ad manager recently contacted the Oregon Bar Association and the Oregon Dental Association and asked if he could sell their books along with his. They agreed, and now when a client says "no" to Portland Physician's Scribe, he has two others to pull from his briefcase. Part of the commission goes to MFMA and helps make the communication department profitable.

The second offbeat sales approach Delf describes involves placing special trash cans in the offices of MFMA's member physicians. Delf's ad manager periodically makes a collection, then goes to those advertisers and explains how their direct mail pieces wound up in the trash, and says that if they had been advertising in Scribe, their messages would have connected and been noticed.

Another publisher increased sales by switching his biggest territory from an outside to an in-house sales rep. Kevin Kridle at Healthcare Financial Management Association (HFMA) suggested the following:

"When you become a major player in an industry, you want the consistency and visibility an in-house rep can provide. Most outside reps just don't have the time to really learn an industry well enough to give you that."

By bringing their Midwest territory in house and expanding it, HFMA was able to achieve record sales. Kridle adds, "We've increased our face-to-face sales in order to heighten visibility with customers. We've also developed our own database and reduced our dependency on our outside reps for selling tools."

In addition to becoming much more aggressive on collections, they renegotiated their printing contract - all combined to improve their profit picture dramatically in the past two-and-a-half years.

Other cost reduction methods reported by those profitable publications we surveyed involved use of new publishing technology, particularly for desktop camera-ready typesetting and page make-up.

Another popular cost reduction method was to stick fast to a predetermined ad/editorial ratio. Others reported switching to lighter paper stocks, adopting self-covering books, and using interns and members to write articles. Two of the 14 reported staff reductions as a means of making the publication profitable.

One editor running a real estate publication with a $30,000 net profit said, "Only in the past two-and-a-half years has the publication been profitable. This is attributable to a one-man staff and conversion to desktop publishing two and one-half years ago. The publication is highly regarded also .. which helps."

Another real estate publication showed a $15,000 net profit, after creating premium ad positions in the publication. "After one year, our sales had increased by $1,000," reported the respondent.

One of the things we discovered in the first survey was that the majority of profitable publications had been around for a long time. In fact, most had been in business for more than 50 years.

However, here are some suggestions from a relative newcomer of six years that turned a profit of $24,952, with 85 percent coming from ad sales.

"We held fast to a 60/40 editorial/ad ratio and converted to desktop publishing. We also generate most artwork and photography internally."

No magic formulas surfaced in the 14 profitable publications we surveyed. Those 14 represent a variety of industries - some of those industries, like health care, are doing well, others, like real estate and insurance, aren't.

Some of the publications have large budgets - over $1 million - and others are small. Most receive their revenue from ad sales, some directly from clients, others through agencies. They exist in various geographic areas of the U.S., and they have vastly different circulation sizes.

The common denominator is that they all operate in the black - return a profit - to their associations. Most receive some amount of their revenue (usually a small amount) from a paper transfer of funds from membership to the publication budget.

The tips the editors and publishers give aren't altogether new or earthshaking.

But they do prove that one out of five association publications can operate profitably, albeit sometimes with a little help from the membership department's budget.

Perhaps the missing ingredient in the 80 percent of association publications that operate at a loss is lack of a "financial plan with profitability as part of its evolution." Again, that commitment to profitability.

Our earlier survey found that most boards showed little or no concern about whether the association publication operates at a loss. As long as that's the case, not much of a change in profitability is likely. Publishers, let alone editors, aren't likely to wave the profitability banner any more vigorously than the boards that govern them.

"We (association publishers) know that we're different, says Kridle, "and we don't want to be different ... but we are, and what do we do about it?"

He suggests we realize that different is better. "Quality in association publications has improved. We've gained respect in the marketplace. Association publications no longer look like association publications.

"But realize that our associations aren't in the publishing business, and consequently it's hard to get them to make changes, even those that would improve the profitability of our publications."

The key is to keep trying. As Rob Delf puts it, "Make a little progress all the time."

And for the four out of five association publications that don't turn a profit, it's important to remember that profitability is only one measure of a publication's performance. Another is editorial excellence - how the publication performs as a communication medium to members, prospects and the outside world. Our limited study showed that profitability and editorial excellence don't necessarily go together. Only five of the 14 publications we sampled had won awards in the past three years.

Perhaps the best goal is a commitment to both editorial excellence and profitability. If you work with equal vigor toward both, you can't help but improve your publication and your value to your association. Cliff McGoon is a communication consultant and previously was publisher of Communication World.

MARCH TO A REGGAE DRUMMER

Here's how Rob Delf, associate executive director, says they increased their publication's profitability at Multnomah Financial Management Association, Portland, Ore.: We published monthly for every six weeks, depending on our mood and the phases of sun spot activity). Losses were $40,000,$60,000 a year. We: 1. Changed the format to a tabloid. 2. Changed frequency to monthly, then twice-monthly, enabling us to present late-breaking news of interest to our members. 3. Focused on real news rather than opinions and fluff. 4. Hired a full-time ad manager. 5. Produced a slick, professional media kit. 6. Became ferocious in monitoring costs. 7. Switched from external to internal production first with comp-edit Varityper typesetting equipment, later a fat Mac. 8. Hired free-lance writers to write copy. 9. Became Rastafarians, grew dredlocks and. played Reggae music all day, mon.