By Jack Harrington, CEO, British Academy of Management
Most advice on income strategy encourages charities to avoid being overly reliant on too few sources of revenue. In these uncertain times, this is both good advice and hard to achieve. Here, I explore seven challenges related to diversifying income, all drawn from my own experience as a senior leader, trustee and CEO.
Don’t diversify just for the sake of it
Diverting resources to new ventures carries risks. You might be giving up on a winning formula or losing out on further growth in your core areas. Income diversification is a risk reduction tool. Before using it, think about how big the risk from lack of diversification is. What other ways to limit that risk are available to you?
Base income generation decisions on how things are, not how they should be
Trustees and your team may tell you that you are missing out on easy sources of income by not doing something. Equally, some core activities might meet your mission but fail to generate income. For example, at the British Academy of Management, we provide support for community networks. This delivers on our mission but makes a loss. Trying to make it pay for itself ‘because it should’ is likely to cause resentment among our community and harm the service we provide. Some activities you prioritise might not even be unpopular with your intended audiences, but you continue to do them because they are what your users ‘should want’. These are all examples of planning based on how you would like things to be rather than how they are. Resisting this pressure is hard but necessary.
Income generation needs expertise and resource
Be honest about whether you have the right level of expertise for what you want to do. If you don’t, is it worth buying it in, training people up or picking something else to do? Success is likely to depend on how easy you will find it to deliver on the income stream you have selected. For example, at British Academy of Management, we work mostly with teachers and researchers in management studies. We are often encouraged to target people working in businesses too. Seemingly, this is a more lucrative market that would fund many of our mission-critical activities. Reaching out to this audience would involve developing new skills, spending more on the level of service we provide and suddenly competing in new markets where we lack experience.
Unrestricted income is often not worth chasing
Charities seeking donations and grants are often encouraged to see unrestricted as the ultimate prize. While many funders acknowledge the value of giving charities the freedom to allocated funds as they see fit, most necessarily place restrictions on how funds are spent. Often, what matters more is ensuring your core activities and overheads are adequately covered and that focused funding for project does not force you to neglect other priorities. All these things can be achieved with the right kind of funding, negotiation and planning. That’s not easy, but it is often easier than competing with others for diminishing pots of money that give you a level of flexibility you may not even need.
When diversifying prioritise non-correlated income streams
At the British Academy of Management, most of our products are paid for by universities and colleges or their staff. When one of these income streams declines, they all tend to. We only have one income stream from a different source: publications. Many in our sector had assumed that this stream would eventually decline. This may be true in the long term but in the medium term it is valuable because it is uncorrelated to other income sources. The pattern of payment for publications is also different, which helps with smoothing out cashflow. Protecting this income stream is a safer use of time and effort than developing new income streams.
Work with your main sources of income to better understand and mitigate the risks they pose
Rather than growing the number of streams, we might do better to diversify how those audiences pay – for example, offering discounts for multi-year payments or creating more flexible options better suited to tight budgets. It helps to learn more about the budgeting practices of your key audiences. Find out what works for them. Are some times of year easier than others? Is it easier for them to pay for training and marketing activities than it is for them to pay for networking or community engagement? Having worked for years with and for big charitable funders, I know it is easy to see them as inflexible and unpredictable. Treating your funders like people who want to help you but have their own problems to address is a good place to start.
The impact of cost-cutting is easier to predict than income growth, but don’t give up!
Future income is necessarily impossible to predict. Overconfident predictions about sales are a great way to eliminate deficits in annual budgets, but they usually create more problems in practice. Many charities have failed while promising to deliver higher income than ever before. Resisting this pressure is hard. Sometimes the solution is to identify what incremental growth over several years might look like and plan for gradual improvement. This is preferable to assuming things will suddenly swing your way with a bit more hard work. However, too much pessimism, like being overly optimistic, often leads to the need to cut costs. Whatever you decide, start with investing time and thought into understanding how you generate income and what realistic options you have.
Income diversification is just one tool for limiting risk. Like everything you do, it carries its own risks. There are many ways to protect future income streams, identify opportunities and deliver your mission. Sometimes, improving what you have may be enough. Most good solutions will come from reflecting on what you can do well and understanding the environment you work in.