Eleven Ways to Increase Nonprofit Revenue
Dania Toscano Miwa and Jim Toscano
For many nonprofits the current revenue situation is undergoing change, especially those seeking growth. With increasing numbers of nonprofits, higher competition, changes in individual giving, more narrow focusing of many foundations and corporations and impending loss of some government funding, where do we look for stability and growth of revenue?
Here are eleven options. Many work together. Not all, or any, may fit specific nonprofit organizations. Hopefully, out of these possibilities, will come some opportunity for increased revenue or a stimulus for creative new options.
Overall, the first step is to build a culture of philanthropy, what we call a culture of building constituency. Hopefully, the result is that everyone associated with the organization understands the importance of revenue generation. Within that context, the following should be considered:
1. Increasing retention of current donors
Retaining existing donors, given current low rates of retention of new and existing donors among many nonprofits, is a first important step in increasing revenue. Recent estimates are that the costs of acquiring a new donor are at least 6-7 times the cost of an effective donor stewardship program. Each ten percent gain in retention is estimated to double the total lifetime value of a donor base according to recent studies. Learning more about the experiences and preferences of donors, especially that 20% at the top of your donor pyramid, is an essential step in this process. Employ both print, electronic and person-to-person methods and events to help achieve your goal.
2. Increasing and retaining new donors
We are always looking in the same spaces and places for new donors, missing the many opportunities to find new sources of interested individuals, businesses, donor advised funds small family foundations, religious organizations and civic groups. As our communities get more diverse, many organizations still focus on traditional donor groups rather than go beyond the stereotypes associated with that thinking. Expand your framework about constituency, learn what interests and excites suspects and prospects and then recruit leaders to attract them. First concentrate on people of high net worth and move through the entire potential donor pyramid using research, sociometry, personal one-on-one approaches, events, print and digital methodologies.
3. Building a robust volunteer force. Dedicated, trained, supervised volunteers are often a blessing in appropriate settings. Not all organizations can readily use volunteers, although all organizations should investigate possible roles for volunteers. Often, there is resistance to having volunteers in the house, resistance based on inertia, staff security, narrow concepts as well as a certain realism about the work done. Volunteers can help with development in two ways: work and gifts. Once experiencing a well-run program for which they volunteer, they will make and increase generous gifts. Long-term volunteers are often a source of planned gifts. From the board to committee to campaign leaders to auction item solicitors to so many other things in-between, volunteers will often help improve the organization’s bottom line as well as speaking well of the agency in their communities.
4. Transforming Board
Boards have many responsibilities, hopefully making their own generous gifs, bringing peers to the table, serving as ambassadors to the community and some of them actively serving on the development committee. Many groups do not have such board members, and it is at their peril not to. Train the board in the culture of philanthropy, make sure the entire board makes a gift each year, and enlarge the board to include persons who will actively and positively participate in securing revenue. This new culture requires continuous renewal of commitments to constituency development, one of the most important roles for the board.
5. Creating or increasing membership
A membership program, where and when appropriate, can add attractiveness and motivation to individuals who share an organization’s values. Given membership connotes benefit, careful planning is needed in devising a membership grid that does not break the bank. Luckily, most people are attracted to experiences rather than material premiums, so lunch with the president is often much more attractive in getting a major gift than a brass plaque. It is also often advantageous to combine all donations into membership categories for focus, uniformity, efficiency and maximum opportunity to increase revenue.
6. Retaining productive development staff
The untold cost of losing productive, effective development officers is a major factor in failure to raise revenue. With an average tenure for development officers of 1.5 years, we need to retain excellent development people, rather than see them leave, the traditional way to get a promotion and better pay. And better pay is a reality of that profession currently, although pay is often not the only reason why people leave jobs. Examine the conditions in which the development team works and ensure high morale and satisfaction. Many of the other things listed here will add to development team satisfaction, morale and staying power.
7. Increasing earned income
Many nonprofits have existing sources of earned income; others have the potential to develop such sources. For those already having earned income, detailed marketing analysis should be undertaken to determine ways to grow this income stream. Will investments in promotion and advertising increase ticket sales for theaters? Will selling some “secret sauce” to others via publications or consulting increase earned revenue? Will selling of back-office services to smaller groups help the bottom line?
8. Investigating alternative funding sources
A variety of alternative sources for increased revenue need to be explored. In addition to the traditional Museum shops, Goodwill stores and Girl Scout cookies, these options have been joined by some high-powered tools, such as Social Impact bonds, pay for performance contracts and a variety of incentives for revenue based on positive outcomes of programs. While the jury may be still out on specific options, the impetus to peg variable revenue payments to outcomes will continue and should be investigated. See an early essay on Social Impact bonds
9. Researching program related loans
As part of the new wave of foundation decisions to use part of their endowments, not just their endowment earnings, to create additional societal impact, the number of loans for programs related to their guidelines are reaching record levels. Some foundations have traditionally worked in this area, but now there are many more, especially the larger, well-endowed groups moving in this direction, as our next option will demonstrate. Clearly, such loans are usually interest-bearing, sometimes below market rates, and have to be paid back, so they need to be utilized as investments not grants. Careful planning, specific operational projections and focused action are required in areas where there must be a return if such loans are to be utilized.
10. Creating for-profit subsidiaries
The social impact movement among foundations and specific individuals, as described in the Money for Good reports has gone beyond program related loans into actual financial investments in for-profit organizations that have both social impact objectives as well as financial return. Nonprofit organizations may benefit from forming for-profit subsidiaries, using knowledge and expertise gained in their work, to both attract such investments and achieve the social impact desired. This option is most relevant for larger organizations, although any group desiring to do so must be able to fashion a business plan that not only achieves desired societal outcomes and has an investment return. Developing a business model may be the first step.
11. Investigating merger
Major donors are increasingly interested in “investing” in scalable ideas, collaborations, partnerships, super-sizing and mergers among nonprofits. While needing the new, small organizations that are often the sources of creative ideas, innovation and new constituency service, it is clear that resources will increasingly be placed in those agencies with ability to grow into highly efficient, effective, impact-focused groups. Nonprofits with potential for growth should investigate potential mergers, not with weaker agencies, but with peers of equal potential. Not all efforts will be successful, but the promise of better service to our communities and increased resources should be sufficient motivation to consider merger, aided by the very financial sources seeking this growth.
These are the eleven that may help stabilize and/or grow revenue for nonprofits.
In the next series of essays, we will go into depth on each option.