By Maggie Corry
In the past three years nonprofits have faced an onslaught of external challenges – rising costs, elimination of revenue streams due to the pandemic, new service delivery obstacles, changing constituent needs, and beyond. These challenges have immediate and lasting implications for a nonprofit’s business model and exceedingly beg the question, “how should an organization go about approaching a shifted business model to respond to this new landscape?”
Shifting your business model may mean shifting your revenue strategy. While business models may take years to fully shift, this revenue strategy work can be started today as you likely already have the skills needed to do so on your team!
Full disclosure, my background is in fundraising and in starting my consulting work at Spectrum Nonprofit Services, I have been working to reconcile my philanthropic funding perspective with the idea of an overall revenue strategy. And it occurred to me, while revenue strategies are not limited to philanthropic funding, development professionals are amazingly equipped to help lead their organizations in this work. Many of the skills they employ on a regular basis are valuable to building earned revenue and contributed support alike.
And for the development professionals reading, yes, I know. When you’re tasked with raising more and more funds each year, adding a new strategic responsibility can seem daunting and even unfair. But, as your revenue strategy is reviewed and adjusted, you will be able to see opportunities for funding that are more sustainable and achievable than funding strategies that may no longer be the right fit for your organization.
What is a revenue strategy and when should you consider shifting it?
A revenue strategy is the funding side of an organization’s business model – it represents the revenue streams that most appropriately fund the organization’s work. Revenue streams are the generic way in which revenue is generated, using foundations or government contracts as examples. Often, organizational leadership assumes the more funding streams the better, but this is not the case. Instead, organizations can strengthen their revenue strategy by determining the right mix, as expanded upon in Spectrum’s article Paying for Impact: What Makes a Sustainable Revenue Strategy?
This “more the merrier,” scattershot approach to revenue hasn’t served organizations well in creating a solid, sustainable financial base from which to build impact. While it may work for start-up organizations, as they mature, growth-oriented organizations focus and typically generate 70 to 90% of their revenue through one stream. They do so through conscious investment of resources into the infrastructure, people, and relationships to do one thing really well and then leverage this expertise in ongoing, creative ways within a funding stream.
To build a sustainable financial base, organizations need to understand and intentionally invest in a revenue strategy that aligns with their mission and considers their community. While the specifics will differ from organization to organization and community to community, the characteristics of this strategy are consistent. It is a revenue mix that will:
- Align with the organization’s impact;
- Produce flexible income; and
- Leverage the organization’s capacities.
As we discuss revenue strategy, we consider both contributed support and earned revenue. Contributed revenue is “support to an organization based on a voluntary response to the solicitations of governments, corporations, foundations, and individuals,” in other words, traditional philanthropic revenue. Earned revenue is “either program-related income – such as hospital care, education, or ticket sales – or other earned income, such as merchandise”.
So, when should you consider reviewing your current revenue strategy and adjusting it? For many organizations facing so many challenges in recent years, the time may be now. In other cases, these factors should prompt a discussion about revenue strategy:
- Funding trends have become stagnant or complacent.
- Sources are unreliable or do not provide the flexibility needed for the organization to pursue its work to the fullest extent; to explore these concepts more, read Analyzing the Dynamics of Funding: Reliability and Autonomy by Jon Pratt.
- The organization has implemented major shifts in programming, presenting the opportunity for a new revenue stream.
How can development professionals leverage their skills to lead this strategy work?
Here are the four steps to get started in adjusting your revenue strategy, leveraging many skills your development team already has. I will use the term development director to represent the leader of your fund development efforts.
- Assess current revenue streams. The development director is equipped to assess current revenue streams because they already do this for contributed support. The goal here is to understand how your revenue streams have performed over time and perhaps, benchmark the performance against peer organizations within your community.
- Identify actionable opportunities to shift revenue streams based on the initial assessment. Your organization’s development director is constantly assessing the environment for funding threats and opportunities, using data and relationship insights to assess the reliability and flexibility of specific funding sources (e.g., ABC Foundation or Jane Doe). Using the information from step one, the development director can identify current revenue streams that would benefit from an investment to maximize success, or to identify areas to put less focus.
- Build a comprehensive plan to shift the revenue model as appropriate, and get to work! Once revenue streams have been identified for strategic shifts, the development director can leverage their project and relationship management skills to rally a team and resources to make the adjustments a reality. Specifically, the development director can lead the team in identifying new or current relationships to work on, creating specific “moves management” plans around certain types of funders to engage them for financial support. The skills of authentic relationship building, communicating the organization’s needs and impact, and understanding funder or buyer motivation will come in particularly useful during this stage.
- Build organizational buy-in and planning cycles to achieve and assess the plan. As with contributed support, development directors are at the intersection of finances, organizational direction, external relationships, and board leadership, making them poised to lead collaborative efforts to adjust revenue strategy. This offers the opportunity to create organizational understanding and buy-in around the new revenue strategy; moreover, as a member of leadership, the development director can influence the organization’s annual budgeting process, building in moments for assessment of the overall revenue strategy and ongoing conversation about its viability.
Adjusting and growing revenue often faces the chicken and the egg conundrum – the organization does not have capacity to think about growth or transformation, but this transformation is needed to build capacity. By leveraging the many skills that your organization already has and applying it to a revenue strategy adjustment, you will make great progress in establish a revenue mix that is more sustainable and appropriate for the tumultuous nonprofit environment.