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Downtown FUNDRAISING Minute: Diversify your revenue sources, no really!

April 19, 2010
by Donna Ann Harris
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Those that have seen me talk about diversifying your revenue sources in the past know that I get pretty worked up about this pie chart, seen below.  It s because I truly believe that downtown organizations, or any organization for that matter, can make a good stab at controlling their own fate by focusing on revenue YOU control.

If your organization’s major  income streams that are subject to other people’s decision-making ability, in my mind you are putting your organization’s fundamental sustainability at risk.

For example, if you rely on grants (of any kind, government, foundation, corporation)  for a disproportionate portion of your income,  it is my belief that the vagaries of changing grant giving personnel, new funding guidelines or your competition in that round of funding, can all can wreak havoc on a carefully crafted budget if your proposal is denied.  Similarly, if you rely on government for a disproportionate amount of you funding, through direct appropriation or “walking around money,” your sustainability is equally at risk, as you cannot control who gets elected or defeated, the dwindling tax revenues available to dole out to constituents, or stances that your organization may take that run counter to that body’s interests.  Both of these are important sources of revenue –grants and government–but should they dominate your pie chart?

I believe that most non profits would be better off if they focused on revenue THEY control.  What I mean by that is revenue sources where the amount of work you put in (to say a membership campaign), has the potential to result in greater outcomes for the organization. More volunteer effort in the fundraising event has the potential to result in better net profits.  I am making the assumption here that the organization is serious about any fundraising campaign and will learn to do it right.

I preach that membership, fundraising events and sponsorship are three revenue sources that, when combined, could (or should) add up to be 50% or more of your yearly operating budget. In the case of these three revenue sources, the organization controls the input, the effort, and therefore has some control over the output.

This methodology, of assigning percentages to these budget buckets, is new to most.  Some Main Street Boards have looked at me quizzically because they do not apportion their budgets into buckets this way. Most do think of revenue streams having a target revenue percentages.  In fact, most are happy not to have targets at all, so the possibility of failure is not so looming.  I think this attitude is unfortunate because it gives little room for constant improvement.  Peter Drucker is famous for his quote “What gets measured, gets done.” For nonprofit budgeting, we need to do more measuring.

The pie chart listed here, divides the budget into seven pieces with an ideal percentage for each piece.

7 traditional revenue sources MS pie chart

Here is a pie chart for a Start up MS budget pie chart with a limited number of funding sources.

Try this for your own organization. Sit with your current approved budget  and a calculator and make a simple pie chart noting what revenue stream brings in what percentage of the entire budget. If you are lucky enough to have an endowment, then include that too.  You might also want to do this analysis with last year’s end of year budget to see if there is fundamental variance.

Then, think about which revenue sources you really DO control. Do they add up to more than 50% of your operating budget? If not, then think about how you can increase these sources incrementally over time. Make the trinity of membership, fund-raising events and sponsorship the dominant revenue sources so they can provide regular and predictable income for your downtown organization.

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