Diversified Revenue Streams: Overcoming the Changing Funding Landscape Faced by Not-for-profits
Written by Philippa Smith
The Australian not-for-profit (NFP) sector is a socially cohesive community of organisations who, despite having varying missions, share a common goal of striving to solve social issues facing our nation for the greater good of society. Navigating the ever-changing funding landscape is a mutual challenge faced by NFPs, and with the potential threat of a funding drought in the post-COVID-19 financial space looming, the adoption of a self-sustaining business model has increased in importance. To spread risk and achieve financial sustainability, NFPs can look at diversifying revenue streams to adapt to change and prepare for the future, allowing them to reach their social missions to improve the social wellbeing of Australia.
180 Degrees Consulting is the world’s largest social impact consultancy, with over 100 branches across 35+ countries. Through our projects, we have helped nonprofits and social enterprises increase the complexity of their portfolio and adapt their business model for improved financial feasibility. NFPs are faced with a unique operating environment, where donor fatigue, volunteer availability, funding cuts and workforce shortages can limit an organisation's ability to reach its social mission. Reducing dependence on grant funding and donations, through diversified revenue streams, can provide financial stability and reduce vulnerability in the case of policy or priority shifts. There are multiple ways an NFP can increase the complexity of their portfolio and adapt their business model for improved financial feasibility. Some key alternate revenue streams to consider include strategic partnerships, commercialisation of assets and social impact bonds.
Corporate Social Responsibility is an emerging theme within the commercial world as organisations become more socially minded, opening up the opportunity for NFPs to partner with organisations who share values and relish in the benefits of uniting against a collective cause. 180 Degrees Consulting has currently been working with feminist organisation Project Respect to diversify their revenue streams and create future sustainability for the NFP. Fiona Macklin and her team presented their “three-pronged approach,” to overcome the organisation's dependence on a single revenue source at the 180DC Impact Night this month where they suggested Project Respect shifts its focus to targeting corporate partnerships, united government and university funding and partnering with other NFPs to create an improved diversified portfolio. With a risk-filled financial future being the reality for many sectors, uniting the social and commercial sectors may be the key to overcoming many of the new issues facing our nation.
Social Impact Bonds (SIB) are a developing movement in Australia, with great potential for NFPs looking to tap into diverse revenue streams. SIB’s include capital contributed by private investors who fund a particular social objective carried out by an NFP. If improvement is seen on the social issue, the government will pay back the initial investment and an additional return, though the investor faces the risk of losses if the social outcome is not achieved. Many NFPs have successfully unlocked the potential of this financial instrument and tapped into this opportunity, including Victorian charity Sacred Heart Mission. In a statement released by the organisation during May of 2017, the benefits of the SIB were emphasised, as the bond acted as a “new way of funding stable housing outcomes,” for disadvantaged Victorians, hence assisting the charity in reaching their social mission. With huge sums of money sitting unused in superannuation and alternate investment options, Social Impact Investment in Australia is an untouched gold mind where both socially-minded investors and NFPs can benefit.
An additional potential revenue stream for NFPs include commercialising under-utilised assets that hold monetary potential. This commonly includes the utilisation of tangible assets such as office space, land or vehicles though can also include intangible assets such as data, intellectual property or unique business processes. Innovative behaviour is key to taking advantage of under-utilised assets and is particularly important in the current global situation. Californian NFP, LifeChronicles, who has previously worked with 180DC on business suitability projects have adopted an innovative approach to overcoming COVID-19’s impact on their business model in order to continue to heal and connect individuals through their touching legacy videos. The organisation have pivoted their focus to two new programs, COVID LifeChronicles which aims to connect those who have lost loved ones due to COVID and have additionally introduced Global Voices of COVID, an international “historical archive,” of testimonies from individuals on their current outlook on the world. Founder Kate Carter highlighted that NFPs have to be “creative in what [they] do and serve what is happening so that [they] will still be here when this is all over.”
Adopting new revenue streams is easier said than done, as it adds complexity and new risks that may not be fully appreciated at the time of portfolio expansion. Barriers to entry faced by NFPs include lack of tools, skills and resources needed to convert contemporary concepts into successful financial security. 180DC has assisted a number of NFPs in achieving a smooth transition from dependence on a single revenue source to revenue diversification whilst navigating legal and financial challenges. There are clear benefits to this diversification, though it may take a fresh pair of eyes provided by an external organisation to successfully implement change whilst overcoming challenges. With the future financial forecast looking unreliable, it is, even more, pressing at this time that NFPs ensure they can adapt to change and disruption through a sustainable business model.