Understanding Membership Products as Subscriptions

This topic defines membership products and discusses how these types of products leverage Aptify's standard subscriptions functionality.

This topic covers the following topics:

• What is a Membership Product?
• Renewal Notices
• Deferred Revenue
• Scheduled Transactions
• Fulfillment Process

What is a Membership Product?

When using Aptify, many types of products may be defined. This document specifically focuses on membership products. This topic describes the characteristics of membership products and why membership products are configured as subscription products. The following list details those characteristics that set membership products apart from other types of products.

• Membership products are commonly purchased on a periodic basis in the form of a renewal after an initial purchase.
• The revenue is usually recognized over the term of the membership.
• Membership products do not physically ship to a customer.
• Membership products may be configured to change the membership type of a Persons or Companies record, which provides tracking capabilities by the membership type and membership date.

This is accomplished by defining a product as a Dues Product and associating it with an appropriate Member Type (as described in Creating a Membership Dues Product). When the membership product is purchased, the membership type of the person and/or company changes and the membership date (join date) is tracked.

Other characteristics are similar to those of subscription products; revenue recognized on a periodic yet fixed term and renewals are processed in Aptify the same way as subscriptions. Therefore, membership products are created as Subscription Items on the Products records. This selection allows memberships the ability to then use Aptify's standard subscription functionality, such as:

• The subscription renewal processes, including the Subscription Renewal Wizard, which is used to renew the membership subscription by creating quotation orders which may be sent as renewal notices, and the Auto-Renew process, which creates a Standing Order to automatically renew a membership subscription. See Renewing a Subscription or a Membership for details.
• Scheduled Transactions, which are a series of records used to track deferred revenue and contain GL entries that will be posted to the General Ledger over the term of the membership.
• Scheduled Transaction Groups, which contain information about the series of Scheduled Transactions and tell the system how to generate Scheduled Transaction records. Scheduled Transaction Groups enhance system performance because they can be expanded on demand rather than creating all the Scheduled Transactions at the time the order is saved.
• The Subscription Fulfillment service can generate membership fulfillment tasks as necessary and track what memberships are being fulfilled each period and how many are remaining.

The functionality of these components as they relate to membership products is discussed in detail below.

Renewal Notices

One of the major requirements by organizations that sell memberships is the need to notify their members of a pending renewal. Renewal notification is accomplished by establishing regular billing cycles and sending out notices as the expiration date approaches.

Aptify provides a tool called the Subscription Renewal Wizard to create the renewal notices. When implemented, the Subscription Renewal Wizard creates quotations in the Orders service that may then be sent to members as renewal notices. The advantage of using the Subscription Renewal Wizard is that it automatically creates quotation orders rather than requiring that a user create these orders manually.
The Subscription Renewal Wizard identifies the memberships to be renewed and creates the quotation orders, which provide a link to the member and the membership product, and they can be monitored and sent to the customer as renewal notices. See Subscription Renewal Wizard for information on how to run this Wizard.

While the period between billing cycles is determined by the organization's business practices, the example shown here uses the following business rules:

• First renewal notice – 4 months before expiration
• Second renewal notice – 2 months before expiration
• Final notice – the expiration month

The following scenario depicts the suggested process for creating and monitoring renewal notices.

1. Create a view in the Subscription service that lists those subscriptions that are expiring in 4 months (first renewal notice).
2. Run the Subscription Renewal Wizard to create quotations for this first renewal notice.
3. Create a view in the Orders service that shows the quotations created for the membership product. Use a filter to make sure only the quotations orders created from the Subscription Renewal Wizard are in the view.
4. Use the Report Wizard to generate the renewal notices.
5. Mail the notices to the members.
6. Convert the quotations to orders as renewals are received.
7. Continue monitoring the view created in Step 3, generating and mailing the second and final notices as necessary.

This scenario provides a systematic way of creating and monitoring the renewal notice process.

Note that Aptify also supports auto-renewing memberships for persons or companies who want to automatically renew their membership year after year without having to receive or respond to invoices. See Auto-Renewing Subscriptions for information on the auto-renewal process.

Deferred Revenue

Generally Accepted Accounting Principles (GAAP) prescribe that revenue be recognized as it is earned, rather than when it is received. To comply with GAAP, it is necessary to defer the revenue recognition of a membership product over the term of the membership. Since dues for membership products are collected on a periodic basis, the revenue can be deferred and recognized evenly over the term of the membership.

The Deferred Revenue option on a Product's Accounting tab is automatically enabled when the Subscription Item is selected.

Aptify handles deferred income processing through Scheduled Transactions.

Scheduled Transactions

When a membership is sold, Aptify creates a Scheduled Transaction Group, which is eventually expanded into a series of Scheduled Transactions. From these Scheduled Transactions, funds are transferred from the deferred holding account to the revenue account as it is earned.

For example, in the case of a 12-month membership renewal for $120, the act of changing an order status from Taken to Shipped and saving the order generates the following GL entries.

When the Scheduled Transaction Group is expanded, twelve monthly scheduled transactions are created. Each transaction transfers 1/12 of the deferred income from the order GL transaction into the revenue account.

With Scheduled Transactions, Aptify provides an auditable, easy to manage, deferred income management system.

See About Scheduled Transactions and GL Accounts for information about Scheduled Transaction Groups and Scheduled Transactions.

Fulfillment Process

Subscription fulfillment is the process of tracking when a subscription is sent to the subscriber. Even though memberships are not physically sent to a member, using the Subscription Fulfillment Wizard is recommended to track how many membership terms have elapsed and how many remain thus providing accurate information about the status of the membership. The information produced by the Subscription Fulfillment Wizard is available on the Subscriptions tab of the Persons record. This information is also available through the Subscriptions service.

See Managing Subscriptions for more information about subscription fulfillment.