Developing and sustaining a sound model for revenue is essential for the long-term health of your nonprofit. But it can't just be focused on the sources of revenue. It must also consider the impact on the costs of pursuing that revenue. Those costs include staff time as well as out-of-pocket expenses.
And don't forget the opportunity costs. For example, if you're staff is engaged on any single revenue source, it can't be paying attention to other, perhaps more vital sources of revenue.
Nonprofit Revenue Model Defined
Mark Fulop in his post “Seven Principles for Building a Nonprofit Revenue Model” gives the following definition:
"Creating a revenue model is the process of thinking about the potential universe of funding accessible to your organization and making strategic decisions about preserving, increasing and/or expanding revenue streams with the highest potential of working within the constraints of your organizational capacity."
As I touched on in the opening, it's as much about understanding your organizational capabilities and constraints as it is about finding new sources of revenues.
Your model also needs to address the fact that your organization shouldn't rely too heavily on any single source of revenue. You need to find a balance, or at least strive toward that balance, between several sources of revenue so that any significant drop in one or more sources doesn't end up putting you out of business.
Mix of Revenue Sources as a Model
With this approach you essentially assess all your sources of revenue and build a resulting pie chart of percentages of revenue for each source. This can include small and major donors, foundations, corporate support, and government grants, among many options.
From the resultant pie chart you can readily see your full revenue model and determine any needed changes. For example, are there opportunities for enhanced revenue? Don’t forget about how you’re investing your time and money on each channel. Factoring those costs into the mix you can help determine your return on each revenue source.
Diversity of revenue sources across these various sources can help increase your total revenue. But if it scatters your time and talent, it can seriously distract you from the optimum revenue sources for your organization. Plus, it can actually add to your costs as you pursue ever-diminishing returns on your investment through those revenue sources that truly aren’t productive.
The key when considering another revenue source is to consider both the reliability of the potential revenue along with your organization’s ability to develop and nurture that revenue. You don’t want to add overhead costs and time that have a negative impact not only on the ROI of the new revenue source but also on your other sources of revenue.
Hybrid Models
Another approach is to consider a hybrid revenue model that combines social mission and commercial enterprise. It’s essentially two businesses operating under one umbrella: a nonprofit providing services that cannot be operated profitably (otherwise for-profit organizations would be doing it) and a for-profit running profitable activities where that profit can be reinvested into both businesses.
The article “Ten Nonprofit Funding Models” from the Stanford Social Innovation Review, provides a detailed discussion of first the differences between nonprofit and for-profit businesses and then points out 10 models along with key examples of each model. Here’s a quick summary:
- Heartfelt Connector: Causes that resonate with a large number of people, providing a way that people can connect and support that cause. One example is the Susan G. Komen Foundation and breast cancer.
- Beneficiary Builder: Organizations, such as hospitals that charge for services but also drive donations through relationship building with past beneficiaries of their services.
- Member Motivator: Churches and other groups that provide services to members who, in turn, feel the benefits are important enough to provide direct support with their time and treasure.
- Big Bettor: Organizations that are often founded and funded from major grants or large donations, examples include medical research institutes and environmental causes.
- Public Provider: Organizations directly funded by government programs such as Head Start for early education.
- Policy Innovator: Organizations funded by government but outside the traditional programs based on their innovative and cost effective approach, examples include Youth Villages and HELP USA.
- Beneficiary Broker: Organizations that complete with one another to provide government funded and/or government backed services, examples are student loans, housing, and healthcare.
- Resource Recycler: Organizations that accept in-kind donations and then distribute these to the needy. Food banks are a great example here.
- Market Maker: Organizations who apply a nonprofit model in areas where for-profit activity would be either unlawful or unseemly, this includes organ donations, medical services, or disease support services
- Local Nationalizer: Organizations who provide services locally based on local financial support while providing an overall national visibility, examples include Big Brothers Big Sisters, Boy Scouts of America, and Teach for America.
As you can see from this long list, there are quite a few ways to first set up a nonprofit and then to make inroads in developing further revenue streams.
You can find another review of these options at Nonprofit Income Models, Seven Fundamentals. They consolidate some of the models above into slightly different groups, ending up with seven rather than the ten shown above.
Campaign Now Can Help
Whatever revenue model you’re currently following, or whatever model you’re seeking to move toward, Campaign Now can help. They’ve worked with a wide variety of nonprofits with many different revenue models. They have the services, the experience, and the expertise to help.
Contact them at (855) 329-4327 or info@campaignnowonline.com.
