Putting both fundraising and spending into a proper context
Most charity managers think about organisational sustainability in the context of fundraising. This is understandable - if they didn’t need money, sustainability wouldn’t be the life or death issue it is for most charities. However, it’s not sustainable to carry on fundraising (and spending), feeding the organisational beast purely for the sake of keeping it fed.
Boards and managers naturally feel the responsibility of sustaining staffing, projects and their charities. However, sustainable charities focus on their goals, not survival; they seek funding that aligns with their strategies. Unsustainable organisations follow the money. They take on too much funding or contracts that don’t cover costs, and they spend so much time jumping through funding hoops that they lose their way.
Money is a necessary but insufficient part of charity sustainability because fundraising doesn’t take place in a vacuum. Money comes from stakeholders, which requires charities to understand involvement. Stakeholders want to know good work is being done, which means monitoring and improving effectiveness. And they want to be confident that their money makes a difference, requiring impact measurement. Sustainable income generation, in other words, relies on a range of other organisational capabilities.
Fundraising strategies therefore need to be holistic, identifying every source of revenue and the role every part of the charity plays in generating it. For that reason, let’s start thinking of them as income generation strategies.
Income generation not fundraising
Income generation strategies are pointless if they don’t connect with the charity’s overall strategy. Ideally, they should be written down, giving staff, managers and trustees clear parameters for the sorts of income – and income generating activity – that are needed.
Some charities operate like they have a big, empty funding hole, and the more money that can be thrown into it, the better. This means they often have quite different purposes for and messages about generating income. For example, large charities often have separate teams for grant fundraising, events and donations, business development and tendering, marketing and communications.
It is unusual to find all these working towards the same strategy – other than filling the pot. Is that what you want your charity to be known for? Smaller charities can have the same problem, for example not recognising that their communications and stakeholder engagements are also valuable marketing opportunities.
That’s why you need a holistic income generation strategy. It will align revenue generating functions with each other and with the overall organisational strategy. It will help charities ensure their limited resources are pulling in the same direction. And, most importantly, it means stakeholders receive clear, consistent messages they can understand and support.
You might recognise this conversation:
Manager: “I need you to raise £1m this year.”
Fundraiser: “Okay, what’s it for?”
Manager: “Are you stupid? It’s for £1m, that’s what it’s for!”
To persuade donors and funders to part with their money, you need to communicate why you need it and what difference it will make (hint: needing money to fill a hole is rarely the right answer). This sounds obvious, but it’s overlooked every day by charity managers who think all money is good money and don’t realise that some sources of funding are worth (or cost) more than others.
Current and desired funding
To start developing, or reviewing, your income generation strategy, identify the current and desired mix of funding you get from different sources (e.g. donations, grants, contracts, events. trading, legacies, corporate sponsorship, investment). Different strategies and messages are likely to be needed for these, which is why it’s important to be clear on what you will – and won’t – do to get the funding. Seeking money without clear strategies is a guarantee of mission drift.
Further segmentation will provide more detail and more interesting data to work with. For example, break donations down into individual, family or corporate. Or break contracts into local or national; public, private or voluntary sector and so on. Other useful criteria can be added, like calculating the lifetime value of a supporter or sector; the number of supporters in each segment; the cost (or time) involved in acquiring or retaining a supporter; changes in value over time etc.
It’s also useful for strategies to identify the funding mix that makes up different projects or posts, and to track when each portion of funding is due to end. This picture is like a sliding puzzle that exists in managers’ heads. Charting it on charts, graphs or timelines helps ease the burden. Staff and trustees can start to understand the complexity of the funding mix and the connections between different strands of activity and funding. It can unite everyone in the charity in contributing to its future.
The important thing is to use all this data dynamically – look for trends over a period of years and be fundamentally clear on why your funders, customers and supporters choose to give their money to you.
Think investment and risk
As pressure on grant-makers’ and commissioners’ budgets grows, charities are increasingly being expected to contribute to the costs of projects and interventions. They may choose to subsidise activities that support the charity’s mission. Or they may contribute towards costs to help the charity become established in a new market or to undercut competitors. However, there is only one way that a strategy of charging below costs can end: bankruptcy.
Make sure your charity always has clear and strategic reasons for doing work that is not fully funded. It’s very common for boards to give significant subsidies to, or investments in, initiatives without realising this is what they are doing. It is what happens when a board approves a deficit budget because not all of an organisation’s sources of revenue or funding have yet been identified for the year ahead. They gamble (hopefully based on informed decisions based on previous trends) that the revenue will come throughout the year.
It is also what happens when a charity accepts contracts or funding that don’t cover the full costs of the work. Again, there is an implicit decision that this is an investment and that the reward is worth it. Charities must look more closely at these “investments” and be more critical about whether there is any return and whether it is worth it. Is this really a contract worth winning? How many customers of this kind can you carry before you bankrupt your charity?
Managers and trustees who make these decisions are seldom stupid or reckless. But they are under real pressure to maintain revenue, generate turnover, keep staff in jobs and maintain services for people in need. In these circumstances, any money can look like good money.
Make clear strategic decisions
Boards and managers must be able to recognise these situations for what they are and make clear strategic decisions about them. If they are investments, what’s the expected return? What else could have been invested in with the same money, and what would that return be? Is the charity using its limited revenue to fill holes - or to build something for the future?
If charities arrive at a position of financial unsustainability, which many will periodically do, it should not be because they were sleepwalking into the problem. Understanding costs and revenue in a holistic way is a vital part of this process.
BE CLEAR ON THE VALUE YOUR CHARITY ADDS WITHOUT BEING LED BY FUNDERS’ REQUIREMENTS. Align funding with your charity’s outcomes and purpose – not the other way around. Having clear criteria for assessing which types of revenue to pursue makes your income generation efforts more efficient. Increasing alignment improves your chances of success. Funders usually know when charities’ purposes are genuinely aligned to their own. And they have a keen nose for charities which are just chasing the money.
ENGAGE WITH THE POLICY AND FUNDING ENVIRONMENTS. These strategies should identify senior executives’ roles in influencing long-term income generation opportunities. The work they do in lobbying, influencing policy and contributing to local or national government strategies helps to create the environment in which services will operate and be funded in the medium to long term. If successful, this also contributes to aligning the internal and external policy environments.
This kind of external influencing should be included in the income generation strategy, so that its purposes are recognised and remembered not just by senior executives, but by boards.
DEVELOP IDEA SCREENING MATRICES AND PROTOCOLS. Charities should develop income generation strategies where financial goals are contained (in both senses of the word). They can act as touchstones for screening new projects and opportunities. They can also help relieve pressure on staff, who often internalise the pressure to take on more and more work. Developing and using an idea screening matrix, as part of the income generation strategy or separate, can help charities to critically review and select from the range of activities and opportunities available.
Sustainability is more than the pursuit of survival. Putting pounds and pence before people and purpose is failing.
