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What is the business model used by aarp?
Hello! Thanks for your question about the business model used by the AARP. The short version is that the AARP earns revenue from a combination of external contributions, grants, publications, investments, royalties, and membership dues. The company has a business model in which they operate as a non-profit, but use for-profit structured branches to generate a great deal of their overall revenue. They also have partnerships with many corporations who act as donors, a handful of subsidiaries, as well as generating income via insurance partnerships, ad revenue from their media publications, and via an internal advertising firm. Below you will find a deep dive of my findings.
METHODOLOGY
In order to determine what the business model used by the AARP is, including how they work and their service and category breakdowns, I compiled data from public statements, industry reports, and relevant media sources.
Per your note of what a successful response would look like, I also used back of the envelope calculations to determine an approximate amount that each revenue segment would have earned in 2015, as well as what percentage each of those contribute to AARP's overall revenue.
REVENUE BREAKDOWN
AARP’s total revenue in 2015 was over $1.48 billion. While there is no publicly available data showing the breakdown of this revenue in 2015, we can use data on past revenue streams to calculate an estimate of the current percentage of revenue each source contributes.
In 2005, AARP had a total revenue of $936 million, of which $56.5 million was contributions (approximately 6% of total revenue), $84.1 million was grants (7.9%), $106.2 million was publication ads (11%), $54.7 million was external investments (5.8%), $379 million was royalties (40%), and $255.2 million was membership dues or related program income (27%).
Using this data, and assuming similar categorical revenue splits in 2015 compared to 2005, we can roughly estimate that 2015 revenue would be broke down as follows: contributions- $88 million, grants- $116 million, publication ads- $162 million, external investments-$85 million, royalties- $592 million, and membership dues- $399 million.
*Calculation: $1.48 billion (2015 revenue) x __% =Estimated Revenue Amount
HYBRID NON-PROFIT AND FOR-PROFIT STRUCTURE
AARP’s business structure is noted to be a blend of nonprofit and profit structure. While AARP itself is a registered nonprofit, many of their services and sectors operate under for-profit entities, and that money is then funneled to support and fund the organization as a whole.
Thus, unlike a typical nonprofit, AARP’s largest source of revenue is earned income rather than grants or public funding, with earned income noted to be 79% of annual incomes. AARP is leading a trend of nonprofits that are adopting for-profit models, and is considered a leader of this trend due to their success and many profitable sectors.
Similarly, it is noted that many of the charitable contributions received by the AARP are often from for-profit companies with special interests. For example, the New York Life Foundation, Metropolitan Life foundation, and United Health Foundation have all donated millions, and it is noted that they benefit via insurance underwriting or profiting off of some of AARP’s promotions and product offerings.
Specifically, New York Life offers an annuity product that is marketed under the AARP brand, Metropolitan Life sells life insurance directly to AARP members, and United Health uses their connection to sell AARP-branded Medicare gap coverage.
MEDIA BASED REVENUE
AARP’s business model also has a large focus around their media branch, which both generates revenue and gives exposure to the AARP brand and membership program. The AARP magazine is now the largest print circulation in the US, with a total readership of 37 million, and over 22 million issues mailed to AARP member homes. In order to support their media revenue, AARP also has launched its own advertising branch, BrandAmp by AARP which then is able to earn revenue from external brands looking to capitalize on AARP’s large audience.
SUBSIDIARIES
In addition to the revenue generated by AARP and its sectors, AARP also has quite a few affiliated organizations who also are profiting from the AARP target 50+ audience. These include AARP Foundation, which is a non-profit for economically or socially at risk elderly, the AARP Experience Corps, a charity which engages those over 50 to mentor and tutor in public schools, AARP Institute, which is a holding company for AARP's charitable gift annuity funds, AARP Services, a for-profit research and quality control organization, Legal Counsel for the Elderly, AARP Financial Services Corporation, and AARP Insurance which holds some of the AARP’s group health insurance plans. All of these subsidiaries operate as separate business entities.
OTHER RELEVANT DATA
Of the large revenue generated by the non-profit by its for-profit ventures, officials note that it is reinvested in services and advocacy for members and senior citizens as a whole. However, critics have claimed that the AARP is actually a webs of companies and entirely self interested. As such, they were investigated by Congress in 2011, as their tax exempt status as a non-profit has often been called into question.
So in summary, AARP has a hybrid non-profit/for-profit business model in which they generate revenue via contributions, grants, media publication and related advertising services, external investments, royalties and membership dues and program income. Thanks for using Wonder! Please let us know if we can help with anything else!