Impact measurement and charity income

For many years "impact measurement" in the charity sector was an unknown quantity; talked about frequently, but not well understood. Whilst there is, and will always remain a need to improve the way the sector measures impact, the sector as a whole is moving to a place where it is looking to define how impact measurement can drive its core business areas including strategy, operating models, service improvement, performance management, and skills development.

However, in no area is this pressure more acute right now than in solving how impact measurement can establish, or re-establish a sustainable funding model for charities.

From acquaintances to friends

Impact measurement and income generation are often like two acquaintances on the periphery of a friendship group – they interact, they share some common ground, and they know they should get on – but they don't make the effort to get to know each other and to become close friends. They need to, and there are two main reasons why.

First is the ever growing interest from funders and partners in the difference that cash donations and gifts in kind are making to their intended. This is now a well-rehearsed narrative – high profile charity failures, a growing scepticism amongst the UK public of the effectiveness of the charities which they support, and a digital generation expecting more information more quickly. The rise of social investment models and the staying power of payment by results contracts are further drivers of this change.

These models inherently lock in funders and delivery agents to a transparent model driven through performance management and deemed to succeed or fail based on robust measurement of social and financial returns. Whilst public opinion and the profile of the issues mentioned can move in cycles the charity sector must always strive for greater transparency and efficiency when spending other people's money.

The second driver is delivering real social change; life changing social change. Financial pressures often dominate the discussion, however in my opinion this driver is and should always remain the key reason behind linking impact measurement with income generation. A charity's beneficiaries will be experiencing one or more significant challenges in their lives, and these challenges are likely to be faced to some degree by subsequent generations.

To create significant change in their lives now and in the future will require learning, adaptation, and sustainable funding. These three enablers can and should be driven by quantitative and qualitative evaluation and research methods to demonstrate change and the drivers of change to all of the funders and other stakeholders involved.

Tools and approaches are available

The good news is that the tools and approaches needed to capture, process, analyse, and report on data are available. It is how you apply them that matters. Here is a proven five-stage approach to embedding the relationship between impact measurement and income generation.

The first stage is strategic. Spend time segmenting your audience base including your major donors, corporate partners, individual givers, commissioners, trusts, foundations, and other key stakeholders such as delivery partners, staff, and volunteers. If your charity is significant in size or scope then it is likely that you will need to model your audiences by applying quantitative data segmentation methods.

Secondly, create a data matrix that maps your audiences, their messaging needs, the indicators that will demonstrate change, data sources, and finally collection and analysis methods. This data matrix will form the core of a data strategy that is audience-led.

Thirdly, turn that data strategy into a reality by implementing the required changes to staff skills, data collection systems, data collection processes, and, crucially, by setting aside enough time and expertise to analyse, synthesise, and understand what the data are telling you about performance and about social impact. At this stage many organisations fail to make the sufficient investment required in training and systems. It can be difficult to find the budget space for upfront investment but this is a prerequisite for sustainable growth.

Fourthly, create reporting products that appeal to your key audiences. It is human nature to respond to and process visual scenes more efficiently and effectively than written prose. Data visualisation is crucial to communicating your key messages and ensuring that they are heard and understood by the people who you are trying to convince.

Finally, create a feedback loop by gathering feedback from your key audiences on the messages that they are receiving. We live in an ever-changing, dynamic society, and the charity sector is no different. People's wants and needs will change and an ongoing programme of audience engagement is needed to stay on top of these changing trends.

Engagement won't bite

At the heart of this five-stage approach lies the principles of engagement, co-development, and innovation. Charities are often reluctant to engage with their funders outside a structured bidding or application process through fear of showing results that are less than perfect, or uncertainties surrounding the changing needs of beneficiaries and how charities operating models aim to address those uncertainties.

Whilst there are inevitably some funders and individual givers who will be turned off by less than perfect results, this is unlikely to represent a significant portion of your base that would put your business model at risk. And anyway are these the people that you ultimately want engaged with and funding your work?

By being brave and putting the longer term before the shorter term, charities can obtain significant benefits and build towards that sustainable financing model. In the social investment space there has been an explosion of advisers, investors, and intermediaries (often referred to as SIFIs, or social investment financial intermediaries).

These organisations exist to provide advice on elements of a funding model where charities can lack experience – complex contracting arrangements, legal structures, commercial arrangements, financial and business modelling – and can provide new and innovative ideas when brought into model development.

The wider funding market is no different. Individuals, trusts, foundations, and corporates on the whole give because they believe in the same social mission that the charity believes in. My experience is that funders are open to learning, to sharing experiences and skills, and to receiving real rather than "jazzed up" reports of progress and impact. And again if they aren't then are these the right funders for your charity in the longer term?

A sustainable funding model is built from strong relationships, a commitment to your social mission, and achieving genuine change for your beneficiaries. They are interdependent, not mutually exclusive, and this is why your impact measurement and your income generation need not only to align, but inherently drive each other as one package of information and insight.

Charities also need to align with partners and sub-contractors to ensure that where there are multiple contributors to ultimate impact of an intervention or advocacy initiative that the contributions and successes can be measured, attributed accordingly across the partnership or supply chain, and that funders can understand collective impact and shared measurement.

Laying foundations for closer working

Charity leaders are having to adapt to a rapidly changing funding environment, with a desire for greater transparency and proof of results being one of those fundamental changes. There is evidence that charity leaders are growing ever more reluctant to accept funding that does not drive their social mission or vision for their beneficiaries and society.

Whilst the desire for greater impact measurement alone is not a reason to adapt or rewrite a whole income generation strategy, it is a strong driver of change to the way that impact is defined, demonstrated, and reported, with co-development among stakeholders at the heart of that change. Impact measurement will not, for example, lead to an end in traditional forms of fundraising; in fact it should strengthen it. However, to achieve this all charities must match their income generation approach closely to donor asks, to how they operate, and to how they collect and report on results.

The charity leader will probably have individually signed off both an income generation or fundraising strategy and an operations or implementation strategy over the past 12 months. How many of those charity leaders sign off a combined impact and income strategy over the next 12 months will be a key indicator of a change of focus in the charity sector, and those who do, and who engage stakeholders in the creation of that combined strategy, are likely to be the charities which establish or re-establish that sustainable funding model for the next five years and beyond.

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