How can nonprofits effectively implement revenue diversification?
In the 2015 Nonprofit Finance Fund Report, 23 percent of nonprofits reported operating in deficit and 29 percent reported break-even finances (Nonprofit Finance Fund, 2015). These reports expose a need for short and long-term strategic planning in order to establish financial security (Leroux, 2005). To avoid operating in deficit, the gold standard, historically, has been to use “revenue diversification”. However, effectively diversifying revenue is more effective than playing a “numbers game”. Nonprofits can no longer use revenue diversification as fail-proof-safety; the more sources of revenue an organization maintains does not imply greater stability.
The only solution to an uncertain funding environment is to “get ahead” of the seemingly stagnate competition curve by creating an uncontested market (Harrison & Thornton, 2014). From this, the writer predicts the growth of entrepreneurship and philanthropy in the future of nonprofits.
The American spirit has long been rooted in entrepreneurial success (Acs et al, 2008). When one strategy, method, or product starts to plateau, there is room for a new strategy, method, or product, as a means of increasing revenue. Allowing opportunities to be optimized is an entrepreneurial act. The implementation of entrepreneurship has shown to be successful in terms of revenue and enhancing an organization’s mission.
Philanthropy is the term given to the donation of time or valuables for public purposes. In the current and upcoming fiscal year, giving is projected to continue to grow (Bivin et al, 2017). The concentration of revue diversification strategies to focus efforts on philanthropy will reduce volatility while increasing projected nonprofit stability. Overall, optimizing philanthropic strategy will “allow donors the privilege of participating in the mission” while aiming to create financial stability.
Revenue diversification was once thought to be the key to nonprofit financial stability. Furthermore, it has been revealed how a nonprofit diversifies their revenue is an important factor in the organization’s sustainability. Nonprofits must not only consider diversifying their sources; but also, have a concentrated focus on the most profitable streams of revenue. Through quantitative research, literature suggests equalizing earned income, investments, and contributions in order to revenue volatility. Every organization’s revenue diversification/revenue concentration strategy will look different, prior to implementation of any strategic changes, assess for mission alignment.
Arcs, Z., Phillips, R., Audretsch, D., & Desai, S. (2008). Non-market sources of American entrepreneurial capitalism. Non-market entrepreneurship: Interdisciplinary approaches.
Bivin, D., Osili, U., McKitrick, M., Bergdoll, J., & Claire, M. (2017). The Philanthropy outllok 2017 & 2018. Lilly Family School of Philanthropy.
Nonprofit Finance Fund (2015). 2015 State of the Nonprofit Sector Survey. New York: Nonprofit Finance Fund.
Leroux, K. M. (2005). What drives nonprofit entrepreneurship? A look at budget trends of metro detroit social service agencies. The American Review of Public Administration, 35(4), 350-362.
Harrison, T., & Thornton, J. (2014). Too Many Nonprofits? An Empirical Approach to Estimating Trends in Nonprofit Demand Density. In Nonprofit Policy Forum (Vol. 5, No. 2, pp. 213-229).
Kathleen Moulder is passionate about health and under-served medicine. She serves her community as a Registered Nurse at a local hospital. Kathleen is a graduate of ASU Master of Nonprofit Leadership & Management.