Nonprofit Revenue Strategy: Build on Your Core Strengths
One of the foundations of my consulting practice is my core belief that difference between nonprofits that are accidentally successful and those nonprofits that are truly successful, is directly related to the investment the nonprofit makes in building its strategic capacity. Without intentional and well thought out strategy, a nonprofit’s success is determined by the prevailing winds and a measure of luck.
Oy vey! This actually happened to me recently with a nonprofit organization (note: not one of my current or past clients). Imagine this. I am sitting in a room with 12 board and staff members of a nonprofit. On the walls is one sheet of chart paper (representing 100% of the agency budget) that has been cut into rectangles. One wall has a rectangle is 24” x 22” to represent government grants (70% of the agency’s budget). On another wall there are two pieces are cut into 12” x 9” rectangles; one piece of paper represented the 15% of the agency’s budget derived from foundation/corporate grants; and the other the 15% of revenues that the agency raises from fee-for-service training. The final piece of paper is a 2” square that over-represents the amount to revenue the agency receives from individual and board donations. The total agency budget is just over $1 million.
I asked the group to move to the revenue stream that they wanted to strengthen over the next 3-5 years. Eight of the people huddled around the 2” square representing individual donations, 2 folks head to fee-for service, and 2 people stood in front of foundation/corporate grants. Only 1 person went to the largest sheet of paper representing government grants.
I stopped the exercise, had the group look around the room to see how they self-selected and then I asked a question: In an agency that had historically derived 70% of its revenues from government grants, why were the majority of the board and staff members huddled around a revenue steam that comprised less than 1% of the agency budget? Of no surprise, the answer was, “We want to diversify our revenues and grow more individual donors to reduce our risk in case we lose some of our grant revenues.” At the same time, the agency has: a) no dedicated grant writer, b) few formal systems to build relationships with government agencies, c) no grant writing calendar, or grant writing strategy.
The point of the exercise was not to expose or embarrass the members of this nonprofit team, rather, it was to surface the thinking of the team. Too often truisms rather than strategy guide nonprofit thinking. Here is an example of “truism thinking” that I snipped from a nonprofit consultant blog,
“Individual donor fundraising can help diversify a nonprofit’s funding picture, and major donor fundraising in particular, which requires a one-on-one relationship building model, can be a great way to systematically expand a nonprofit’s network and funding. It is also the highest and best use of a board member’s fundraising time.”
At face value, such a simplistic statement, spoken by an expert (wagging her finger like your mother) would cause many nonprofit boards to huddle around the 2″ square. However, strategy supported by data trumps truism every time. Sticking with the example above, as I mentioned, the nonprofit had $700,000 of government contracts and another $150,000 in corporate and foundation grants. How many “major donors” would need to be cultivated (and at what cost), to reduce this agency’s dependence on grants?
Let’s be clear, I am all for an explicit and written board member expectations around supporting the nonprofit financially and the board member’s use of his/her civic reach. At the same time, never confuse board giving with your core revenue strategy, unless perhaps, you are the smallest of start-up organizations.
The point of this blog is that nonprofit agencies are often chasing revenues without thinking through a strategy that is grounded in the organization’s core strengths. Concentrating on a strategy that aligns with your core strengths is not a new idea (2004 Pratt, 2009 Foster, 2011 Kim). Rather, the challenge is taking a disciplined approach to building organizational capacity that aligns with your nonprofit’s core revenue strengths.
Again, in the example above, the obvious first investments in expanding the agency’s revenue model would be to ensure the organization has a robust grant writing and grant management infrastructure. Focus first on the 24” x 22” rectangle to ensure that it can be sustainable and scale over time. Once the agency invests in building a grant strategy, designing a grant seeking approach, engaging in prospecting and relationship building (supported by technology tools), adhering to a grants calendar, and successfully managing grants received, then, and only then, should they think about the 2” square. So what is the 2″ square in your organization and are you focusing on it too much?
When it comes to revenue planning, forward thinking nonprofits begin with maximizing their strengths. They invest strategy, time, money, human resources, and build systems to support strength. So ask yourself where is the strength in your organization’s revenues. Are you investing in that strength? Can you invest more? Investing in planning, starting with your strengths, is required to frame and accelerate the sustainability and growth of your organization. Effective nonprofits recognize the need for strengths planning then prioritize and invest according.
As always, your thoughts are welcome.
Photo Credit Helloquence