What’s the Right Revenue Mix for Your Nonprofit?

(This article is adapted from a presentation for the Metrowest Nonprofit Network, September 30, 2005 in Natick, Massachusetts. Nan Haverstock, MA, CFRE, contributed to this article.)

Designing the Right Revenue Mix is a lot creating a good personal financial plan – how do you know what’s right for you or, in this case, for your organization?

Any competent and trustworthy financial advisor will give you the same 2-word answer: it depends! In the case of creating a personal financial plan, how you earn and save and invest and donate your money depends on your age, your current financial circumstances, your earning capacity, your short-term and long-term goals, and your tolerance for risk.

It is the same for non-profits. No two organizations have exactly the same financial requirements, goals, challenges or capacities. However, there are certain rules of thumb that guide development and fund-raising for all non-profits.

Harold Seymour, the great fund-raising consultant of the last century, whose classic book “Designs for Fund-Raising” is now unfortunately out of print, said, “Good laws and principles of organized fund-raising are a priceless gift of the long years… ignored or trifled with at your peril. (Harold J. Seymour, Designs for Fund-Raising: Principles, Patterns, Techniques. New York: McGraw-Hill Book Company, 1966.)

In order to see how to make the best choices for designing the Right Revenue Mix, it is important to follow these principles and rules.

Principle #1

Development is just one component of the larger picture of Institutional Advancement.

These parts are inter-connected. Everyone within the organization is, in fact, a development officer – and so are the stakeholders. Happy staff, happy clients, happy community = gifts. Bad press or unhappy stakeholders = decline in gifts.

Principle # 2

Development Takes Time.

What are some synonyms for the word “development?”

Evolution – Formation – Growth – Flowering – Maturation – Improving – Unfolding: These words suggest a gradual change over time.

Whether you are starting a brand-new development program or adding a new Revenue source to your Revenue Mix, it will take time and energy to become well-established.

Those outside the field may be surprised to learn that it takes about eight to ten years to build a new program to a point at which revenues equal or exceed expenses. Now obviously, some kinds of revenue are quicker than others.

For example, a direct mail annual appeal will yield at least SOME results in the first year, but building an income stream from endowment interest could take 20 years or more.

The quickest way is not always the best, and it is not always the most cost-effective. A general rule of thumb is that Special Events tend to be the least cost-effective fundraiser; Major Donors are most cost effective.

Principle # 3

Creating the Right Revenue Mix requires a substantial investment of both human and financial resources.

All of us have heard comments like, “Well, why don’t you just go write some grant proposals?” or “When are you going to go out and get us some money?”

Unfortunately, these remarks often come from the very same people who should be helping to create and guide the development effort.

Fundraising efforts cannot continually start and stop. They must be designed and managed in alliance with your long-range strategic plan. Creating the Right Revenue Mix to fund your organization’s requirements for buildings, programs, services, endowment and operating support must be examined against the interests and capacities of potential donors.

Identifying, researching, cultivating, and securing donor support requires a considerable amount of time, measured in years, not in months. And it DOES require an investment of resources.

Principle # 4

You must look honestly at your organization.

See it as it is. Not as you wish it would be, but as it is. Right now.

In order to design the Right Revenue Mix, these are the questions you must be able to ask AND answer:

Who are you?
What are you all about?
What are you trying to accomplish?
What are your goals?
How will you know when you are succeeding (or have succeeded?)
What are your requirements?
What are your strengths?
Why do people give to you?
What do you know about your donors?
What else do you need to know?
Who are your stakeholders?
What is your case?
Who’s doing the asking?
How much money do you need?

Principle # 5

Creating the Right Revenue Mix is driven by your organization’s Mission.

Just as you cannot make a personal financial plan without knowing your life goals, an organization cannot make a workable financial plan without a comprehensive strategic plan, based firmly in its mission. So the development plan is just a subset of the organization’s strategic plan.

By answering the questions we just mentioned, you will have defined your goals. Then you will outline the objectives to reach those goals, detail the action steps or strategies to meet those objectives, and determine a cost for each action step – in terms of resources, time and money needed. Add these all up, and presto– not only do you have a budget, you’ve determined your fund-raising goals!

Why is it so important to know exactly how much money you need?

You cannot plan programs or services without a budget
You never know when you might run into that mythical “Donor on the elevator” – the one who listens to your one-minute pitch and takes out his or her checkbook!
It gives everyone in the organization a clear picture of where they should spend the most time and energy

For example, a common scenario in a mid-sized npo is for everyone – staff and volunteers – to go all-out full-time for six months planning and implementing an annual gala – which generates only about 10% of the annual budget. Not an effective use of resources. Now if you go back to Principle One, you may find that the annual gala is also the most important Public Relations vehicle your organization has – in which case, it is an important part of Institutional Advancement. But be sure you look carefully.

So, how are you going to get the money you need? Go back to the answers to the questions. Then look again at your completed strategic plan.

How much time is committed already? How much time remains? Do you need more staff? Less staff? More people dedicated to raising money? How much time is available to raise money and who is going to do it? How much money is your Board willing to invest in fund-raising right now? How much more should you ask for in next year’s budget?

Of the different methods of bringing in Revenue, how much will each cost? What is the cost/benefit ratio in terms of dollars and cents, and in terms of staff and volunteer time?

Below are the ten most common sources of revenue for most non-profits.

Annual Fund -Memberships/dues/annual appeal (other than major gifts)
Social revenue ventures – (Sales, tickets, merchandise, royalties, tuition)
Fee-for-service (either direct or third-party payers)
Major gifts
Capital campaign gifts (buildings, equipment)
Special events
Grants (corporate, foundation, government)
Planned gifts
Endowment income
Other – investment interest income, other

Please contact us to help you choose the Right Revenue Mix for your nonprofit organization.