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Revenue Strategy

Category Archives: Revenue Strategy

A Quick Guide To Developing New Programs and Revenue

By | Cool Analysis, Revenue Strategy

Jumping from problem to solution to application is very tempting, but you know what they say about assumptions…

We developed this graphic to demonstrate how nonprofits can grow opportunities for new programs to help their beneficiaries or new sources of revenue. Using a multi-step cycle like this one is a great way to organize your project and bring your ideas to fruition.

Develop New Programs Nonprofit
  1. Opportunity Identification:

    Simply put, you’ve discovered a problem (and they aren’t too hard to find), and you’d like to do something about it.

  2. Idea Generation:

    Get creative and put down as many ideas for solutions as you can. Don’t get stuck on your first practical idea and stop there! Embrace wild, crazy, and out-there. You’ll pair them down later.

  3. Discovery & Investigate:

    Put your best ideas to the test. Research, ask questions and expose your designs to as many people as possible. Don’t get discouraged – ideas need to be road tested so you can go back and improve them.

  4. Prototype Development:

    Start putting your plans into the physical space. The goal isn’t the most perfect prototype but one that clearly explains your problem so you can better input. It can be made out of cardboard as long as people can picture what you’re talking about.

  5. Pilot Launch:

    By this point, you’ve cycled between steps 2-4 more than a few times (if you haven’t- get back in there!). It’s a big deal to get to launch your product or service to a broader audience but keep in your mind that you are still looking for the holes and cracks so you can continue to improve.

  6. Later Versions:

    You’ve got an idea, and it works! You can start to think about creating new versions or replicating your program somewhere else as long as you go back to the discovery stage. Don’t assume your idea will work everywhere.

Is your nonprofit recession ready?

By | Revenue Strategy
Nonprofit Recession Help Room40 Group
Is your nonprofit recession ready?
7 Steps to securing the future of your organization

Do you want to know the good news?

The economy is growing faster than it has in years. The United States GDP and equity markets are in their ninth straight year of expansion. Foundation endowments, the assets of individual donors, the investments of many nonprofits: all have been steadily growing for almost a decade. Which means that however hard you and your team are working, your current challenges are happening in a time of relative and sustained plenty. Especially for nonprofits that rely on private philanthropic funding: these are the good times.

But with two-thirds of economists in the U.S. expecting a recession to begin by the end of 2020, the good times may end sooner rather than later. If a flood is coming, it’s time to build a boat.

If you aren’t sure how your organization should respond to a downturn, now is the time to plan. Preparing for a recession takes work but trying to do it during a shrinking economy is much harder. We remember the last few recessions and what it took as Executives to steer our organizations through them. If you want to be ready for bad news when it comes, we’ve got seven steps you can take right now to help make your organization recession ready.

1. Anticipate and craft the narrative

The story you tell about your organization and the importance of its work is going to sound different in bad times than it does in good. Think through how to make the case for what you do in general – and what you will do specifically – when the weather turns. Was your fair-weather pitch all about the future glories of growth, expansion, and serving more people? That’s going to sound jarring when everyone’s investment advisor is running around like their hair is on fire and the front page is full of stories about whether western civilization is falling into the sea.

You will still need to motivate and inspire during hard times. More than ever, you will need a compelling story that fills people with inspiration and urgency to act. You need to show your donors and staff that there is plenty about your organization to be excited about. Don’t let yourself be defined by the things you can’t do or have stopped doing now that the weather has turned.

2. Run Scenarios

No one can predict the future, but you can make some pretty good guesses. Take your budget projections and start running bad news scenarios. If the stock market tanks, donors and foundations will see their own assets shrink. It’s likely fundraising revenue will take a hit. Some ways to run the numbers:

  • Let’s say people say yes to you 50% of the time that you ask them for gifts, what happens if they say yes only 25% of the time?
  • If your multi-year pledge pipeline is looking pretty good now, what would happen if 10-20% of those pledges were canceled?
  • What would happen if payment on 10-20% of those pledges were delayed by 12-months?

Some donors plan to make gifts from the sale of assets. But if the asset’s value is depressed, markets are suddenly illiquid, or buyers are running for the hills, your donors may look to postpone their giving until better times. Even donors with liquid cash may use it to weather the storm themselves or to strategically acquire things they see as undervalued.

If the past is prologue, you can expect that a good number of fair-weather friends will walk away from your organization when times get tough. But the donors and allies most invested in your work will stick around. It is likely you already have a gut sense of who is in this second group. It’s worth talking to them explicitly about what will happen when a recession hits, and how the organization will respond.

Believe it or not, some of your more loyal and invested donors will be open to increasing their giving in a recession, in part to counter-act retrenchment elsewhere. Of course, they will be more likely to do this if they’ve heard a compelling narrative and had time to get used to the idea.

3. Get back to mission-critical

If the economy contracts you may have to as well. If you don’t want to make cuts that undermine your mission, what can you do?

First, get clear on what is central to your mission. It may be a lot harder to outsource or reduce these activities because they are what makes your organization unique. It’s easier to scale back the activities that are less necessary or more experimental. In an expanding market that has people feeling optimistic experimentation is great for attracting the attention of new donors, creating innovation, and inspiring your staff. In a market where your operating budget is getting smaller and people are generally risk-averse, activities that suck up cash without bringing in revenue are activities you should consider scaling back or taking an intermission on. Be clear on what is core to your mission and alternatively what you can hit pause on until the situation improves. What does ramping down look like for your organization?

Remember, you won’t be the only ones falling back to your core. If history is any guide many foundations and grantmakers will experiment with new and innovative programs in the good times but will retreat to the tried and true during the bad times. Don’t be a fair weather friend yourself. The deeper your relationship with your foundations, the more likely you’ll be able to count on them when things get tough.

4. Make Fixed Costs Variable

In every organization, there is a chunk of costs that you can’t really change or get out of in the short term. The biggest one is your people. Layoffs are incredibly disruptive, painful, and demoralizing, even when done well. Fortunately, there are other ways to reduce your commitments as the storm hits.

Review fixed costs like rent and facilities. Long leases may save you money but also represent big liabilities. Three months into a recession, you may happily want to take office space at less rent, but if you are stuck into a multi-year lease, there may be little room to maneuver. Month to month leases may be more expensive in the short term but easier to get out of.

Another option for reducing your commitments is to review ways to outsource activities. Consider this for less mission-critical work where outsourcing would be less expensive and won’t compromise your short-term ability to have impact. Examples relevant to your organization might include human resources, design, website hosting, technology, marketing, or bookkeeping. By outsourcing, you can create more flexibility to scale your level of investment up or down as appropriate.

5. Build Cash

Build a healthy cash reserve in the good times. Once things go south, it’s too late. Did we mention? These are the good times.

For most organizations we know predicting how much revenue they’ll raise next year is an inexact science. We’ve seen many organizations make reasonable projections that later looked wildly optimistic when the stock market crashed three months into their fiscal year. In general, if you’re conservative about the money you project to raise next year, you’ll be in a better spot if the economy turns. Of course, if things go well you can save some or all of that surplus as a cash reserve.

It’s not easy to say ‘no’ to worthwhile projects in order to put cash in the bank. But remember: once the recession hits you can’t help people outside the organization if you can’t make payroll.

How Room40 Can Help

Did one of these steps made you say ‘uh-oh’? Not sure how your organization’s current strategy makes sense in the context of a howling recession? Don’t panic!
Room40 Group can help you with any and all the above. Our founders and principals helped navigate nonprofits through the worst of past recessions and out the other side. We can help you figure out the best way for your organization to face any number of challenges and make plans that will help you feel much better about the future. Get in touch!

6. Take advantage of someone else’s money

Another way to build a cash reserve is to borrow it, especially while circumstances are good. The best time to set up a line of credit is when you don’t need one. Banks need people to borrow and are far more likely to agree to favorable terms when demand for these services is low. In good times banks offer all kinds of incentives to borrow. These incentives disappear with lightning speed once the bad times arrive. If you don’t have a line of credit, now is the time to talk with your financial advisor about finding a loan that’s a good fit. If you do have a line of credit, consider negotiating for a larger limit.

In addition, pre-recessions are a good time to renegotiate your payment terms with your vendors. If you have a vendor that you pay every 15-30 days, see if you can arrange to pay every 60 days. If you ever find yourself in a tough cash position, then having flexibility here means you can hold onto cash longer and have more time to get gifts in before the bill is due. People are more likely to give you favorable terms in a good market. Once things go south your vendors are going to start looking to speed up their own collections.

7. Take Care of Yourself

Stress and isolation for nonprofit leaders are already very real and difficult parts of the job. Fair warning: they don’t get better when the future of your organization is in question.

We’ve talked so far about things you can do to prepare your nonprofit for recession. Equally important is your plan for how you are going to take care of yourself. Those of you who were leading organizations in 2002 or 2008 likely remember the stress and trauma of keeping things going when the American financial system went up in flames. It’s taxing to be the one providing stability and a way forward for others in moments of chaos. So, finding ways to manage your stress and take care of yourself is just as important as anything else you could do for your organization. If how you talk about your organization to your staff and donors is reflective of your stress and fear, then it’ll be that much harder for your message to inspire and motivate.

Do you have a mentor you can turn to? Can you identify healthy ways to manage stress that work for you? How can you make time for those activities or people even when you are completely slammed? Build the supportive network and the practices in the good times that can bolster you in the hard times.

Turns out you agree: Revenue strategy does matter

By | Cool Analysis, Growth strategy, Revenue Strategy

A stunning 88% of nonprofit leaders* say developing and implementing a revenue strategy would make a significant difference or a tremendous difference for their organization’s long-term success, but only 22% have one.

You’ve heard us say it before: revenue strategy is important.  Like your program strategy, it aligns your organization around a goal, the path to achieve it, and resources it will take to get there.  It sets you up to make the best use of scarce resources as you raise money to support your mission.  (If you’re wondering how program strategy and revenue strategy are different, check out this post.)

Creating a revenue strategy takes time and money – both of which are often in short supply.  So perhaps it’s not surprising so few organizations have one.  But if it’s so valuable, you would expect that organizations would take steps consistent with a revenue strategy, even if they don’t have the resources to develop a full strategy.  There are two metrics that can help organizations allocate their fundraising resources more effectively:

  • $ raised per fundraising FTE, a metric that sheds light on whether raising more money will require more people or more/better support and systems for the people you have
  • Return on investment of fundraising activities, a metric that helps allocate scarce resources among the many possible ways you could raise money

(If you want a refresher on what these are, check our webinar here.)

We asked if organizations are using these metrics and we were surprised by the results:

  • 12% calculate the dollars raised per fundraising FTE
  • 17% calculate the return on investment (ROI) of their fundraising activities

So, what’s going on here?  There’s an approach to organizing our efforts around fundraising that we believe will result in better long-term results, but most organizations aren’t doing it.  There are simple metrics that would move us a step closer to a revenue strategy (and a step closer to best use of resources) but we’re not using them, either.

As data-geeks, that’s a head-scratcher for us.  But we’re astute enough to know that we’re oddballs.  So, it leads us to ask: what conditions need to change for revenue strategy to get the time and attention it deserves?  What can we do as a sector to address this?  A few things:

  1. Awareness.  Like program strategy 20 years ago, revenue strategy isn’t commonly talked about, used, or understood.  It’s hard to find the time, money, and support for something that isn’t common.
  2. Evidence.  With so few organizations using them, there aren’t many stories to tell – yet.  And if you’re looking for irrefutable evidence, that’s even harder to find.  Our instincts and experience tell us its important, but we’re short on evidence and success stories.
  3. Support.  Until Foundations and Boards understand the value of revenue strategy and are willing to support an organization’s pursuit of one, nonprofits will be hard-pressed to find the time or dollars to do it themselves.  It’s just the harsh truth of nonprofits’ access to resources, and the power of the gatekeepers of those resources.
  4. Availability of expertise.  Throw a nickel and you’ll hit a dozen nonprofit consultants (including us!).  How many of those do revenue strategy?  Not many.  And what they mean by “revenue strategy” is different from one to the next.  So, even if you have the support of your Board and the funding to do it, it takes some effort to find someone to help with this, and your options may be limited.  (We’d be happy to help!)

We are thrilled to see agreement on the importance of revenue strategy.  We are saddened to see how few organizations are taking steps in that direction.  But where there is a gap, there is opportunity.  We’re committing ourselves to addressing these barriers to revenue strategies so that organizations make the most of their fundraising resources, enabling them to do more good in our world, sooner.

If we’ve piqued your interest, but you’re wondering “what is revenue strategy, anyway”, stay tuned.  That’s our next post.

Yours in pursuit of more revenue,

Anna, Ben, George and Harleen, aka The Room40 Group

* We hosted a webinar a couple weeks ago all about the importance of Revenue Strategy, what it is, and a couple of steps you can take to get started.  GuideStar was kind enough to host it for us.  We had over 250 attendees.  The stats in this post are from questions we asked during that webinar and in a follow-up survey.

ICYMI: Our webinar “Too little revenue, all the time?”, hosted by GuideStar

By | Revenue Strategy | No Comments

It was a busy Monday, so we don’t blame you if you missed it!  We put on a great webinar on the importance of Revenue Strategy, what it is, and a couple of steps you can take to get started.  GuideStar was kind enough to host it for us.  We had over 200 attendees.  Not bad!

We know your day doesn’t stop just because we are hosting  a webinar.  So, here it is for your watching and listening pleasure.  Enjoy!

Yours in pursuit of revenue,

The Room40 Group

We need to talk. It’s about revenue.

By | Philanthropy, Revenue Strategy

Ever notice that nonprofits dedicate many hours (and many dollars) to developing their programmatic strategy?  It’s a big change from 20 years ago – and it is usually time and money well spent.  But, nonprofits rarely do the same for their revenue strategy.  “Their what?”, you might say.  Exactly.

Organizations spend too little time on revenue strategy – what they will raise, how they will raise it and why, with limited time and money. This was our big “ah-ha” towards the end of 2017. We don’t have to tell you revenue is a big issue; you tell us all the time.  Somehow, every conversation comes around to revenue.  It either starts there or it ends there.  It’s inescapable.

Here’s a critical observation that will help us start to crack open the issue of “too little revenue, all the time”:  Nonprofits are in (at least) two businesses.  What does that mean?  Why does it matter?  And what does it have to do with revenue strategy?  We’re so glad you asked.

Two businesses?  What does that mean?
It’s tempting to think of your “business” as your programs.  It’s what you exist to do: feed the hungry, teach the children, provide services to those who need them most.  There is a set of activities (with associated costs) and a set of beneficiaries.  Your program staff and all the people that make their work possible (IT, HR, Finance, Accounting) are part of this “business” that serves your clients.

But look around your organization and there are other people (and costs) that are not directly serving your beneficiaries. They are engaged in different activities: planning galas, developing relationships with donors, submitting grant applications and reports, advocating for public funding, and on and on.  Their “customers” are different, too: individual donors, institutional funders, hosts and guests at your fundraising events.  They aren’t soliciting your clients (unless you are a college, university or hospital); they are engaging with an entirely different population, including individuals, corporations, foundations and public funding sources.

The fact that they are doing different things (costs) for different people (customers) than your program staff means they are in a different business.  Namely, raising money. So, yes, your program is your “business”, but it’s only one of your businesses.  Raising money is also your business – your second business – and it’s an important one!

There is a handy 2×2 from Bain & Company that illustrates this business of two businesses. It is generally used in the for-profit context but it applies to nonprofits just as well.  (Did you think the dawn of 2018 stripped us of our love of 2x2s??) High cost sharing and high customer sharing = one business. Low cost sharing and low customer sharing = two businesses.


Two different customers, two different sets of costs = two businesses.  Why does it matter?
Different businesses have different goals, require different activities and resources.  Knowing what it takes to run your programs and how to do it isn’t the same as knowing what it takes to raise money and how to do it.  (In case you hadn’t noticed, this is why the ED job is so dang hard!)  You’ve probably intuitively known you’re in two businesses for a long time.  Being able to describe your businesses, you can start assessing their needs and results with greater clarity and efficiency.  Instead of a two-headed monster, you can see you actually have two monsters! You can differentiate between an investment in one and an investment in the other and the return on those investments.

What does all this have to do with revenue strategy?
Strategic plans are all about allocating limited resources.  They tell you what to focus on (and what not to).  Organizations with programmatic strategic plans have a clear argument for resource investment on the program side.

Just like your program strategy, your revenue strategy clarifies what you are doing with limited time and resources, how and why – for your revenue business.  Taking the time to develop a plan, including a good hard look at your philanthropic potential compared to your own performance and that of your peers, will help you decide where to invest, which activities to spend your time on and what to say “no” to.  It will help you see if your goals are achievable and make the case for the resources you will need to achieve them.  It gives critical context to your tactics, allowing you to justify the investment required to reach your goals.  Now, doesn’t that sound dreamy?

We’ve been helping clients with organizational strategy for years.  It’s all about programs and operations.  More recently, we’ve been working with organizations on revenue strategy, within the context of growth or program strategy, but increasingly as a standalone issue.  It has been eye-opening for us, and for them. So far, we’ve found investing in revenue strategy with the same diligence and rigor as a program or operating strategy yields a high return… staff, board and funders can more clearly articulate your mission, resources are allocated more efficiently, and oh yea, you raise more money.

If one of your businesses has a strategy and the other doesn’t, it’s not hard to imagine that goal-setting, resource allocation, and decision-making is going to be easier in one than the other – and the one without will suffer.  Our hypothesis:  We can’t escape the land of “too little revenue all the time” without addressing this imbalance – without a revenue strategy.

So, there you have it.  Our ah-ha from 2017 and our early thinking about revenue in 2018.  Next week, we’ll ask for your perspective.  What do you think?  Do you agree revenue strategy is important?  Do you think we’re just plain crazy?  Keep an eye out for a survey.  This is too important to be a one-post topic!

Yours in pursuit of revenue,

The Room40 Group

Does Boston have too many nonprofits?

By | Philanthropy, Revenue Strategy

Yesterday’s Boston Globe ran a front-page article on an important and provocative question: “Does Boston have too many nonprofits?”  It sparked a lot of conversation is our office, as I imagine it has in yours.

The article starts by telling a story about OneGoal— a Chicago-based organization helping under-served high school students enroll in and complete college— and their recent decision to expand to Boston. The article then describes the decision by some local funders, schools and partners to work with them, and others not to. In the course of telling this particular story the article walks close to, and touches on, a number of questions that will be familiar to folks who have put their shoulder to this kind of wheel: Is the often fragmented and entrepreneurial state of the nonprofit sector a strength or a weakness? How should funders interested in greater impact best focus and direct their efforts? Are there better ways we should all be working together to tackle the deep and challenging inequalities in American education?

A first observation about all this: I love that the Boston Globe is asking these kinds of questions! At the Room40 Group we spend lots of time wrestling with this sort of stuff as we help our nonprofit clients grow, change and improve. It often feels like nonprofits only get promoted to the front page of the newspaper because of some real or perceived scandal. This week the Globe used above-the-fold, front-page real estate to ask a complicated question about how we can all have more impact. Perhaps I’m a glass-half-full guy but this feels like progress, of a sort.

A second observation: The Globe article acknowledges that lots of nonprofits in Boston are already working on making college accessible, and graduation a reality, for individuals that have the deck stacked against them. In response to the statistic that forty similarly-minded organizations are currently partnering with Boston Public Schools one local foundation executive comments: “The market [is] pretty saturated.” But both the article and this statement confuse the means with the ends. Nonprofits trying to move the needle on college attainment work in two “markets”: one for charitable funding; the other of students receiving services. Are either of these “markets” saturated? In other words, are there no students left in Boston who could use the services of OneGoal or its peers? And if we believe an unmet need is there: how much potential money is needed and could be raised to address it? In this particular article the Globe neither asks nor answers either question.

It’s a pity, because these two questions are central to the matter of where and how nonprofits try and increase their impact. The interviews quoted in this Globe article raise the specter of redundancy and ask if we should do more to avoid it. But if the nonprofits the Globe cites are collectively reaching less than 100% of the students who need their services isn’t the need under-met, rather than over-met? Indeed, redundancy may have benefits. Some of the organizations cited in the Globe article focus their resources on access, or getting kids into college. Others focus on retention, or keeping them there through graduation. Are kids in need better served only getting one or the other?

If the Globe wishes to argue for focusing and consolidating resources on nonprofits that are having the most impact, it should make that case. But this article doesn’t argue for bringing effective and proven programs to all kids in need; it only asks whether we should reduce the number of organizations doing the work.

At the Room40 Group we routinely help nonprofits quantify and compare across geographies the size of the unmet need they wish to address. We have also built a proprietary database of all the private philanthropy in the United States so we can size the potential charitable support for different causes in different places. Nonprofits can have significantly more impact if they make good decisions about where to grow and how to pay for it. Making these decisions with confidence requires asking the right questions, and then answering them with the right analysis.

Because we’re consultants, we sometimes like to show things in 2×2 matrices. It’s a stereotype, I know; please don’t hold it against us. The one illustrating this post we’ve used to help clients think about how the amount of ‘potential funding’ and ‘unmet need’ influences where they grow.

When considering OneGoal— and the other Boston nonprofits highlighted by this Globe article— the Globe and local funders could ask: How big is the unmet need(s) they are individually and collectively trying to address? What will it take and how much potential funding is required to address it? The answer to these questions would suggest how much more needs to be done, and how we might think about achieving it. The question the Globe asks—in effect: How many organizations do we need to do everything well?— is best answered in this context.

That’s our view.  What’s yours?

 

Full transparency: The leadership of the Room40 Group knows many of the individuals and organizations referenced by this article, either personally, professionally, or both. Several are current or former clients. George Chu, my co-founder and partner, is a former Board member of Bottom Line.