For many nonprofits and charities, revenue diversification happens when a crisis strikes such as the loss of a primary funder or investor. But, if nonprofit organizations can be strategic and proactive in their revenue diversification, they can mitigate this risk.
At Volunteer Alberta, our leadership team has been working hard to diversify our funding. So, I sat down with our Executive Director, Karen Link, to discuss revenue diversification and how other nonprofits can get started.
What does revenue diversification mean to you?
Karen: It means financial sustainability – it’s looking at multiple revenue streams to mitigate risk and to reduce dependency on just a few sources of funding.
Why is it important for nonprofits?
Karen: Revenue diversification goes beyond risk mitigation and financial resilience. It’s demonstrating your relevance to more stakeholders. When you diversify your revenue, you have to think about who cares about what you care about. It’s not just the government. It ranges from ministries to corporations, to foundations, to individuals.
- Governments (federal, provincial, municipal)
- Foundations (family, community or corporate)
- Earned revenue (fee for programs and services)
- Donations and fundraising (lotteries, casinos, donations)
And there are other emerging trends in revenue diversification including:
- Saving costs by partnering on service provisions (shared staff, shared infrastructure, and shared programs and services).
- New business models that are similar to social enterprises. For example, partnering with a private business that wants to do something that affects your clients. So, that’s something you could be a part of but not necessarily initiate.
How do organizations even begin the process of revenue diversification?
Karen: There are nine steps to revenue diversification. Step one is you need to understand the impetus for change. You need to understand the need to establish funding that’s reliable, flexible and varied from different sources. Your board needs to be on board as they have a role to play; they have to understand the vision and work their networks.
Once the need is clear, your organization undertakes other steps including a review of your funding sources within the last 10 years, identifying potential investors, evaluating the internal capacity you’ll need, consulting with others, and managing risk.
Finally, you develop your implementation strategy and put it into action. After that, it’s all about assessment and continuous improvement. Improve, scale slowly, and keep building within your means; you need the capacity and the time to do it.
What are the common barriers nonprofits experience when they seek to diversify their revenue?
Karen: Internal capacity is often the biggest barrier. You’ll have to be able to identify prospective new funding streams or investors and establish and maintain those relationships. You need dedicated people for any type of business development. You need to invest in the right people to generate more revenue.
Most times, people try to focus on business development with existing resources, but they don’t realize it takes additional resources to develop those business models and establish/maintain those relationships. You have to spend money to make money.
What tips/recommendations would you give to nonprofits struggling to find other sources of revenue?
Karen: The number one thing is to consult – talk to others about what they’ve done, talk to other organizations, engage your board, engage your staff, and think outside the box. Think about who cares about what you care about. Look at how people are making money and saving money.
There’s no one size fits all. But, when you talk to other people about how they’re diversifying their revenue and how they’re generating revenue, you can get ideas for your fund development plan.
Another important thing is to have a clear aspirational goal – what is it that you want to see? And then make and test your assumptions. This is your theory of change.
For example, your assumption could be I believe people would pay more for our services. And your theory of change could be if we build a platform where the reporting and resources would be so valuable, people will be inclined to pay. Be bold and put those assumptions out there and test them.
Are you ready to diversify your revenue? Get started with the 9 steps to revenue diversification!