How to realistically and safely diversify your income

Blog

October 08, 2019

How to realistically and safely diversify your income

By Ian McLintock

Founder Charity Excellence Framework

This blog was originally published on Ian McLintock's personal LinkedIn page.

Should we diversify?

Reliance on a small number of income streams may limit the extent to which income can be grown. There is also a strategic risk that an increase in competition for funding or an unforeseen major event could have disastrous consequences. However, generating new sources of income entails a degree of risk and requires resources and time, not only to implement, but also to manage on an ongoing basis.

The challenge is to manage both the strategic and operational risks, whilst ensuring that your funding streams will provide the type and amount of income you need, now and in the future. That is a lot easier said than done, but for organisations with limited resources and operating in an increasingly challenging environment, not doing so could be potentially catastrophic.

What factors do we need to consider?

There are a wide range of external factors that could impact your organisation, from the impact of GDPR to new technology and the economic environment. This NFP Synergy article by Joe Saxton includes a very useful checklist of issues you may wish to think about.

It's also worth reviewing your current income streams to assess your income needs going forward and how urgent the situation might be:

  • Are your current income sources adequate to fund your activities?
  • What scope is there to grow these?
  • How confident are you that these will continue and, if not, when might these end?
  • Does the current mix of restricted and unrestricted income meet your needs?
  • Are there any specific risks related to these that you will need to be mindful of?

If your scope to grow your existing income is limited and likelihood of it falling significant, or the impact of that happening potentially disastrous, you may have no choice, but to diversify.

We all quite rightly think well of ourselves and our organisations. Consequently, assessing our own strengths and weaknesses can be difficult, but is essential. Having a huge database of individuals isn’t a strength, if they are disengaged and it’s hugely out of date. Listed below are some factors you may wish to consider.

  • Finance – how much could you afford to invest in developing additional income?
  • Return on Investment (ROI) - how much do you spend on each income stream and how does this compare to the amount brought in? Is there scope to improve this by being more efficient?
  • People - how much capacity could you commit and what skills do your team have? Is there a culture of fundraising in your organisation? In particular, are the Board engaged and willing to help?
  • Supporters - how large and engaged is your supporter base? For those outside of this, are there other groups whom you might realistically engage and who would be open to becoming donors?
  • Communications and marketing - how good is your marketing and social media, reach and engagement? 
  • Other assets - do you have products/services/space that could be sold commercially to other charities or organisations?
  • Systems and procedures - do you have the policies, procedures and systems, not only up-to-date and in place, but also working effectively?

What would the best strategic approach be?

Bring your thinking above into an income SWOT analysis. It may help to identify any elements that are particularly important and/or urgent. Use this to develop your thinking around potential strategies, such as.

  • Using strengths to exploit opportunities. 
  • And/or use these to address weakness. 
  • And/or to mitigate/avoid threats or, better still turn these into opportunities.

As an alternative, or to refine your SWOT approach, the image with this article is an Ansoff Matrix, which I modified for fundraising. You may wish to consider using this to help you to assess the degree of risk that might be inherent in your strategy. Below is a very simple analysis of how this might be applied.

  • Low Risk: Current Methods/ Existing Donor Segment - good for organisations that need income in the near term, but don’t have a significant funding gap, have significant scope to grow existing income, don’t really need to diversify income or are risk averse. 
  • Medium Risk: New Methods/ Existing Donors Segment - good for organisations that have a large/engaged donor base, some resources to invest or want to diversify income. 
  • Medium Risk: Existing Methods/New Donor Segment - good for organisations that have unexploited donor segments, some resources to invest and/or want to diversify income. 
  • High Risk: New Methods/New Donor Segment - good for organisations that have limited donors/fundraising methods, potentially significant resources to invest, don’t need to deliver increased income in the near term, are ambitious and willing to accept higher risk and/or need to diversify income.

What options are open to us?

There are a wide range of options, including trusts, high net worth donors, regular giving/friends/membership schemes, direct mail, lotteries, legacies, community, event, corporate, sponsorship, statutory, trading, online and crowd funding. 

There may also be groups of donors who can be grown, or others who could be engaged to become donors. A stakeholder mapping exercise may be helpful in assessing these opportunities.

If any of your existing income streams are not delivering a reasonable ROI and/or facing increased competition, you may wish to consider winding these down and investing the capacity and resources in another area.

All the above will work in the right circumstances and if done well, and some overlap and can be used to complement each other. Each has its own merits and drawbacks, and which would be best for you will depend on your analysis. 

Which option(s) should we choose?

Some you will already be doing, others may obviously not be feasible. For the remaining options, consider these in light of your findings above, then select and implement the best. Some questions you might use to help you do so:

  • External fit – to what extent does it exploit opportunities and avoid threats?
  • Internal fit - how well does it play to our internal strengths and capabilities?
  • Return on Investment (ROI) – will the income be sufficient to meet our needs?
  • Timing – will it do so quickly enough?
  • Income – will it generate the type of income we need – restricted/unrestricted?
  • Donors – is there are sufficiently large pool of donors/prospects?
  • Resources – do we have the additional capacity, skills and resources we’ll need?
  • Risk – is the degree of operational and strategic risk acceptable?
  • Any other benefits - for example, recruiting new donors who might be developed, encouraging new volunteers or generating useful PR.

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