To LIS-CILIP members,

A number of contributors to the recent LIS-CILIP discussion have called for more detailed information about the thinking behind the subscriptions reform proposals.  In particular, CIG Chair Aran Lewis has raised on this list a number of points that he and I also discussed off-list a couple of weeks back.  At that time, Aran posed a whole range of questions about the proposals, which I answered in consultation with CILIP's Director of Finance Rowena Wells.  Aran has agreed that this discussion can be reproduced in full on LIS-CILIP, so below you will find the two emails concerned.

Best wishes,
Tim.

[Tim Buckley Owen to Aran Lewis, 5 Oct 2004]

Hello Aran,

Sorry about the delay in getting back to you.  Here now are the answers to the 7 questions you pose:

Q1:  Assuming that rates for sub-£17k earners remain the same and membership holds steady, the switch to the "flat rate" would lead to a reduction of subscription income of between £101,295 (all £17k+ earners pay at full rate) and £216,087 (all pay discounted rate) per year.

A1: In modelling changes of this kind, you don't aim for one figure but operate within a margin of risk.  The margin of risk within which we are operating is represented by the maximum and minimum number of members we have in any 12 month period.  In the latest such period, this varies between 23,371 and 20,214 - a margin of 3,157.  Your quoted £216,087 deficit would equate to 1,440 members at the £150 flat rate or 1,566 members at the discounted £138 rate - both numbers comfortably within our margin of risk.

Q2:  Assuming, as seems reasonable, that 90% of members will opt to pay by direct debit and thus pay the discounted rate, the loss of income will be £204,608 per year. 

A2: If 90% of members opt to pay by direct debit we will be delighted.  Not only is the loss of income within our margin of risk (see 1 above) but we will also be able to renew virtually all of those members automatically, so we can stop worrying about lapsed memberships half way through the year and concentrate on recruiting new members instead.  (See 5 below.)

Q3:  Is this intended, or do you plan to raise rates for sub-£17k earners to fill the gap, and assume that they will pay? 

A3: No, we don't plan to raise rates for members earning under £17,000 (beyond any future inflation-related increases, which of course we can't predict and which would apply to all members). We expect to raise subscription income by (a) significantly reducing the number of memberships that lapse for no good reason each year and hence (b) freeing up staff time to concentrate on recruiting new members.  See 4 and 5 below.

Q4:  Or are you hoping that membership will rise sufficiently to make up the shortfall? 

A4: We're not hoping that membership will rise; we're doing something positive to make it happen.  The subscriptions reform proposals are part of a three strand strategy that includes significantly improving the range and quality of information available exclusively to members online, and marketing proactively to potential members through advertising, mailshots and exhibition presence.

Q5:  Assuming the change to the flat rate creates no extra costs and that new members cost nothing, you would still need 10% more members, all earning above £17k, just to hold income at its current level. If each member costs £39 (just a guess) per year, you would need 14% more £17k+ members to hold income steady, and to achieve a 10% increase in subscription income, you would need 20% more £17k+ members.

A5: Your assumption is based on the premise that we can do nothing to reduce the lapsed membership rate, but that is the other half of an equation that includes the strategy for recruiting new members (see 4 above).  Each year we lose some 3,000 members because their membership lapses.  Some leave because they've either retired and don't want to continue in membership, or because they've left the profession altogether. A few leave because they're dissatisfied.  But very many memberships lapse because renewing is currently such a fiddle and comes at an awkward time of year for many.  We know this because we do recover very many of these members in the second half of the year - 555 in July and August of this year, for example.  So, with direct debit we can look to significantly reduce the number of lapsed memberships and, again, can concentrate instead on recruiting new members.

Q6:  Do you have any grounds for believing that membership increases such as this could be achieved?

A6: Assuming that the AGM approves the flat rate proposals, and that we continue with the other two strands of the member recruitment & retention strategy (see 4 above), we'll be working at the start to a target of a 5% annual increase in members.  However this may well be an unduly cautious target.  We should be able to achieve nearly that simply by significantly reducing the number of lapsed memberships (see 5 above) and we will still achieve subscription income that is within our margin of risk (see 1 above). 

Q7:  What is "Plan B", if membership stalls or declines, due either to the flat rate, economic trends, or other reasons? Thanks in advance for any solutions you are able to provide for these problems.

A7: The risk of membership stalling or declining for external reasons exists at all times whether or not we have a flat rate.  However, we can significantly reduce this risk with a flat rate allied to direct debits, because we will be able to renew most memberships automatically, and because we will be able to give a much more straightforward answer to potential new members when they ask 'What will CILIP membership cost me?'.  This will mean that the existing membership base will be more stable, and less prone to membership lapsing without good reason, and we can concentrate on recruiting new members with a much more powerful membership proposition than we have at the moment.  

A7 (continued): And we don't believe that membership will stall or decline as a result of the flat rate, because the combined flat rate/income-related scheme represents a better deal for all members who currently pay an income-related subscription.  In particular, lower paid members will be able to spread their payments throughout the year while still qualifying for the Prompt Payment discount - and they will also see a much bigger proportionate discount than higher paid members do, because of the change from a proportion of subscription to a flat £12 discount at every income level.  The net result is that every member who moves to one of the Prompt Payment options will pay a lower subscription in 2005 than they did in 2004 - and, for all the reasons given above, we expect to be able to sustain this model throughout the transitional period to 2008, and beyond.

Best wishes,
Tim.

[Tim Buckley Owen to Aran Lewis, 15 Oct 2004]

Hello Aran,

Thanks for your further questions - responses below:

Q8: The "margin of risk" argument is interesting, but however you count the members I still don't see how you can avoid an income reduction without increasing membership over the subscription year by 10%, whether this is done through reducing defaulters or new recruitment. 

A8: The margin of risk calculation also applies to subscription income as well as to member numbers.  In this case, the margin is between £2m and £2.1m. In other words, we'd need to generate subscription income somewhere between these two figures from all personal CILIP members in 2005 under the proposed new system.  Modelling the likely subscription income for 2005 on the basis of the proposed new system, our calculation is that we should achieve income of around £2.054m - i.e. again comfortably within the margin of risk.  Clearly this can only be a calculation because you're aiming at a constantly moving target - numbers of members.  However we're confident that we will be within the margin of risk - not least because the estimated figure is right in the middle.    

Q9: I haven't seen any argument or calculation in support of such an increase; 555 recovered defaulters out of about 3000 is not going to do it, and while additional recruitment efforts should bring in new members, I haven't seen any evidence that this can be guaranteed or the quantity predicted.

A9: Since we last spoke the number of lapsed members recovered is up to 837.  We certainly don't expect to recover all lapsed members, for reasons outlined last time, but we will expect to continue the recovery process throughout the year.  Beyond this, over the last 12 month period, we've welcomed 1,112 brand new members - about 5% of the median of our margin of risk.  There would be our 5% growth rate if we lost no lapsed members at all.  Over the same period, we also recovered a total of 1,374 formerly lapsed members - about 6% of the median of our margin of risk.  Between them, these figures bring us more or less back to our current 0% growth.  But I believe that we can meet the further growth target, through a combination of reducing lapsed memberships further, and retaining new members (both of these as a result of being able to renew members automatically) and also increase the membership further (through the combination of advertising, targeted mailshots and increased members services, as I mentioned last time).  The 5% growth rate is a target, of course - not a forecast.  As I said, I believe we can meet it, but it is a target, and targets have to be tough but achievable.  

Q10: All the administrative reforms are excellent - not paying at Christmas, direct debit discounts, simpler and more attractive early payment discounts and automatic renewal - but none of them require either a flat rate (the stated proposal) or subscription cuts, whether focused primarily on high earners (apparently the actual proposal), or not. 

A10: I'm pleased you think the other proposals are a good idea.  Unfortunately, they do require the subscription reform in order to be financially viable.  The argument goes like this:

1 We can't reduce the unit cost of servicing memberships unless we grow the membership or reduce services.
2 We can't grow the membership unless we stop the annual cycle of lapsed memberships.
3 We can't stop the lapsed membership cycle unless we can renew members automatically.
4 We can't renew members automatically until we no longer have to ask what they earn.
5 We can't afford incentives to encourage members to go onto Direct Debit until we can plan to renew memberships automatically.

Q11: With the description "combined flat rate/income based scheme", you seem to be moving towards acknowledging that the flat rate scheme has been dropped; if this is so, I think it would be useful if you, or the decision making body, could say so publicly, so that the debate could be about the real issue - the sustainability and impact of subscription cuts.

A11: No, this isn't correct.  Ever since we started modelling the proposed new system at the start of this year we have always recognized that it couldn't apply across all members who currently paid a subscription based on their income, because that would have resulted in intolerable increases for lower paid members.  So we modelled on the basis of a combined flat rate/income-related scheme from the start, and we said that this was how it would work in the first article on the subject, which appeared in the Gazette of 4 June, which was the first available Gazette after Council had approved the proposals.

Hope this is helpful.

Best wishes,
Tim.


-----Original Message-----
From: Aran Lewis [mailto:[log in to unmask]]
Sent: 28 October 2004 12:56
To: [log in to unmask]
Subject: "flat rate" - the sums don't work


The so-called "flat rate" proposal is actually for a banded, income-based 
system capped at approximately £150 at today's prices (£138 with discount). The 
top rate will be payable by everyone earning more than £17,000. The £138/£150 
subscription will be increased by the rate of inflation, but there is no 
proposal to raise the £17000 threshold in line with inflation. Subscriptions at 
all levels will be lower than in 2003/2004, and cuts will be largest for high 
earners, due to the £150 cap. Those who earn less than £17k (34% of 
subscription-paying members at present) can pay at the top rate by default or 
opt to pay at the banded rate. It is hard to see any low earners opting to pay 
more than they have to, except through embarrassment or error, and although 
Cilip have not admitted that this is part of the design I can think of no other 
reason for introducing an opt-out process. A little extra income may be gained 
this way, but there may also be people who believe that flat rate means flat 
rate (a reasonable supposition), and leave or decline to join Cilip because the 
rate appears too high for the benefits on offer (remember that Cilip refuses to 
act as a trade union and does not provide workplace representation or access to 
qualified lawyers, thus denying itself the 3 strongest reasons for joining! 
Cilip is also losing its advocacy role to MLA, a generously grant-aided quango 
that does not have to worry about members and subscriptions).

The sums don't work ...

Assuming that membership remains at the same level as this year, I have 
calculated using figures provided by Tim Buckley Owen that capping 
subscriptions at £138/£150 will produce a reduction in Cilip's annual 
subscription income of between £101,295 and  £216,087, depending how many 
people choose to receive the discount. 90% take-up seems a conservative 
estimate, and on that basis, with the same membership, Cilip's income will fall 
by £204,608.

Even assuming that Cilip members cost the organisation nothing, a 10% increase 
in the number of members earning over £17k would be needed to make up the loss 
through subscription cuts. I was not able to discover what members actually 
cost, but estimating (very conservatively, I suspect) that it is £39 per year, 
a 14% increase in such members would be needed to maintain income. To increase 
income by 10%, members paying the top rate would have to increase by 20%. 
Obviously larger increases in members would be needed if some new members earn 
less than £17k, which seems almost certain.

Tim does not dispute my calculations, but says that his are based on a margin 
of risk, not actual membership, and that forecast figures are within the margin 
of risk. In reality it is actual members who pay, and we will need a lot more 
of them. Cilip believe that increases can be achieved by cutting subscription 
rates, by releasing staff from subscription-chasing duties to concentrate on 
recruitment, and by reducing the number of defaulters. They are probably right, 
but no research seems to have been done on how many extra people can be 
recruited and retained in this way. We do not lose thousands of members 
accidentally every year; most of them are simply late payers, their money is 
received during the year, and they pay more because they pay late. The policy 
seems to be: close your eyes, cut subscriptions and hope for the best.

According to Guy Daines, the AGM is "sovereign" in deciding subscriptions. 
Consequently, if this year's AGM (or now the postal ballot) agrees a 3 year 
plan, next year's AGM is at liberty to discard it and do anything else it wants 
to do. This being so, it seems to me that what we need this year is evidence to 
show that the "transitional" subscription plan for 2004/2005 (cuts across the 
board) is sustainable in itself, and not just as part of a 3 year plan, but no 
such evidence is forthcoming.

I think the blind faith approach is reckless and likely to damage Cilip. I 
would reject the current proposal on grounds of fairness and economic 
sustainability. I would also request that Cilip break out of their blinkered 
obsession with the subscription structure, and look at all the other relevant 
factors, especially the issue of value for money raised by Gillian Edwards and 
others.

Regards, Aran Lewis.

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