“The single most important decision in evaluating a business is pricing power.”
—Warren Buffett, CEO, Berkshire Hathaway

While the overwhelming majority of AZA member organizations are not-for-profit, Warren Buffet’s observation is applicable. It is a simple truism. While your organization likely earns revenues via many facets of its operation, there is one asset in your possession that stands above the others. This asset represents your strongest lever towards profitability, and in times like this, it is imperative that organizations focus their attention in areas where they’ll see the biggest return.

The asset is access, or more specifically, access to your facility. Sure, you collect revenues through education programs and special events; gift shops and food outlets; and activities and experiences. But it’s very likely the income you derive through the process of simply admitting people onto your site dwarfs those other channels combined.

We’ve chosen the word “access” here deliberately. “Access” is not synonymous with “admissions.” Your admissions program tells only half the story (probably more like 60 to 75 percent if we’re splitting hairs). The other side of the coin is membership. Membership programs are sometimes treated as a bit of an afterthought—a strategy to be considered reactively in the context of changes to admissions. We’re here to argue that in order to achieve Nirvana, for the universe to reach a state of divine balance, and for bottom-line incomes to be maximized, admissions and membership programs need to be considered as two halves of a singular access strategy.

There are two strategies that we recommend:

1. Base your pricing decisions on empirical research and data.

2. Make sure your membership fees are in balance with admissions prices.

“The world changed while you were out. Consumer attitudes, beliefs, and behaviors have been rocked. Some will return, others will not. Pricing could be the key to optimizing revenues.”
 —Jerry Henry, CEO, H2R Market Research

On the topic of admissions prices, many organizations in the AZA orbit take one of two approaches: (1) following a path they set out on long ago, periodically increasing prices when it “feels right” (or when they are put in a position that requires it); or (2) arbitrarily raising prices when they open a new exhibit. These strategies are not categorically wrong, and philosophically they do check some important boxes. But at the same time, neither of these strategies maximizes the revenue potential of an attraction. To truly ensure that your organization is optimizing its bottom-line return, you must understand how consumers value you. This can be accomplished through primary market research. By employing one of a handful of research methodologies, your organization will be able to determine a strategy that balances supply with demand and finds the optimal mix of quantity and quality. That is, will you generate more revenue with fewer visitors at a high price, more visitors at a low price point, or somewhere in the middle? Unlike so many qualitative endeavors, there is most certainly a magic number. A secondary (although likely equally important) outcome of reaching out directly to your market is that you’ll have the opportunity to expand beyond your existing pond of constituents. You need to query not just your members and visitors, but also a large panel of “general population” respondents—people not already in your current constituency. That gives you a tremendous opportunity to learn about the folks who you’re missing out on—the ever-elusive “new audiences.”

Once you have the data based directly on what your potential consumers told you on the admissions fee, you’re in a great spot. You now know what our market will bear; you have surgically accurate data on how to optimize site capacity towards maximal admissions revenue. One the other side of the coin, we have the issue of how to price your memberships. The question now becomes, how do you set your membership prices? There is a lot of misinformation out there on this topic. While well-intentioned, the rule of thumb that states your basic family membership should be calculated at some static multiple of your admissions fees (the most common number we hear is 2.5) is simply wrong. While there are some scenarios where 2.5 is the appropriate multiple, treating that number as gospel for the entire industry is incorrect. The danger here is that if memberships are priced too high in relation to admissions, organizations will miss out on key market segments. If they’re too low, they will cannibalize their own gate revenue. In either case, miscalibrations of membership price represent significant lost revenue.

Pegging membership to admissions pricing is the right general strategy, but one size does not fit all. Let’s take a look at how membership prices are actually being set in the industry today:

In this chart, which is based on data from AZA member organizations, we see that there is a wide range of price ratios at work. That dashed blue line is the trend of those ratios, and what we observe is that as admission (the blue area) gets more expensive, the membership price ratio (the orange line) declines. Another interesting facet of this analysis is the degree to which organizations “agree” about how to set their prices. On the low end of the admissions price spectrum, there are wild deviations (low agreement) above and below the trend. At the high end, there is much tighter clustering (high agreement) right around it.

So how should your membership be priced? The short answer is “it depends.” There are a lot of variables at play besides the cost of admission. But when we look at how your peer organizations are pricing theirs, there’s good data that points towards correlating your admissions fees to a membership price ratio that is at or near that trend.

It’s also critical that you don’t pick a price ratio and stick with it indefinitely. As admissions prices change—and they will—you’ll need to adjust your ratio accordingly. That’s why it’s so important to understand this concept as you set out to create a plan that analyzes, balances, and leverages your admissions and membership programs in unison. There’s no other way to ensure you’re getting the most from your most valuable asset.

Price levers are powerful, but they’re also sometimes challenging. For many organizations, changing admissions and/or membership fees requires buy-in from a governmental oversight body. In the past, this has been a major roadblock—why ask if you’re just going to be told “no”? But in this moment, when public budgets for next year are incredibly uncertain, you have much more leverage than you may think. If you can make a compelling case that a fee adjustment will reduce your reliance on public funding, your message will be heard.

Another concern is accessibility. Many mission-driven organizations worry about pricing out a portion of their audience. Formal pricing research does not have a pre-determined outcome, and it’s entirely possible that you may discover target discounting or even a lower ticket fee is optimal for your bottom line.

Lastly, it’s important that you consider the holistic impacts of price adjustments on your organization. Changes at the front gate have effects on grounds: you may see fewer or more guests, and your guests may shift their behavior at other revenue channels. That’s why it’s important to quantify these impacts before making changes to your pricing strategy by modeling the operations of your facility.

For more information on these strategies, please check out Zoo Advisors’ New Tomorrow Financial Toolkit, or feel free to drop us a line any time.