Nonprofit organizations need to be aware of the crowding-out effect. shows that the diversification of revenue through charitable donations also improves the financial health of US nonprofit organizations. Diversification is an essential part of the LEGO marketing strategy. In the AFP averages shown below, not every “slice” is created equal. All of these details about the nature and behavior of various revenue streams matter to the health of the overall operation, complicating the question of whether or not diversification is needed. This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. In short, revenue diversification is regarded as a cushion strategy for nonprofit organizations to battle against financial instability and uncertainty (Kingma, 1993; Tuckman & Chang, 1991). (1) Additionally, it makes it easier to raise capital and easier to do budgeting and long-term financial forecasting. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions. For example, nonprofits could add more paying customers for the same services. 4. stakeholders enhance revenue diversification; and (d) revenue diversification does not help organizations maintain financially sustainable. The more visible you are, the more hands you can get involved in your efforts. Adopting a strategy of diversification should lead to greater stability in the revenue structure of nonprofit organizations, which potentially makes longevity and sustainability also more likely (Jegers 1997; Kingma 1993). Joint ventures are on the rise and now is … However, the courts have stated that, to avoid a change in tax status, the activities of the organization must be linked to its mission as well as be ancillary to it. An endowment is a pool of funds which is invested and provides returns or ongoing income to a nonprofit, either for a designated purpose or for general operating support. Organizations with two sources of revenue were more financially stable than those with either one or three. This article comes from the spring 2019 edition of the Nonprofit Quarterly and was first published online April 10, 2019.It discusses the value proposition of nonprofit revenue diversification, which is a timely topic for many nonprofits as they struggle through the present and future budget impacts of the pandemic and related forces. Let’s explore some of the top ways to diversify your revenue stream: Conduct prospect research to find potential new major donors. Chang et al. A nonprofit can’t sustain its mission without visibility. If you are raising 90% of your funds from one type of funding source, then you are putting all your eggs in one basket. First, a diversification strategy minimizes financial costs to members and decreases the organization’s dependency on a sole revenue source. But what does it mean to diversify a nonprofit’s revenue? Questionnaires were administered to executive directors of 1,115 New Jersey human services and community improvement organizations. The Research on Diversifying Revenue Streams for Nonprofits. The courts have clarified that a non-profit organization can diversify its income sources while still maintaining its tax-exempt status under the Income Tax Act. Organizations that were dependent on just one or two funding sources found themselves fighting for their very survival. In a growing for-profit business, management is constantly expanding its product offerings, adding sales and marketing infrastructure, and looking for ways to increase revenue … The value of revenue diversification is a time-honored assumption in nonprofit financial planning. In short, revenue diversification is regarded as a cushion strategy for nonprofit organizations to battle against financial instability and uncertainty (Kingma, 1993; Tuckman & Chang, 1991). Using data from 501 responding organizations, this study found certain organizational and environmental characteristics have a significant influence on nonprofit revenue diversification. Our primary independent variable of interest is revenue diversification. However, empirical studies on the relationship between revenue diversification and financial health have produced mixed results. If your nonprofit needs a review of your revenue streams, reach out to Cherry Bekaert’s Nonprofits group. Nonprofit Quarterly’s Mark Hager and Chiako Hung have co-authored an article highlighting the positives and negatives of nonprofits maintaining revenue diversification. Cultivate intentional relationships with donors. This organization already had several diversified sources of income to balance a mission-centric, but money-losing, program. The Canadian Income Tax Act defines a non-profit organization as “a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for One reason that revenue diversification is tricky is that it means different things. Explore corporate giving opportunities. Nonprofit organization leaders increasingly encounter social burdens and financial difficulties, jeopardizing ongoing success and organizational sustainability. In light of previous findings showing diversification to reduce financial vulnerability in nonprofit organizations (Greenlee 2002; Greenlee and Trussel 2000; Hager 2001; Tuckman and Chang 1991, 1996), we expect an increase in revenue diversification to lead to a decrease in revenue … In fact, the opposite is true. The point of income diversification is to help the organization become more financially sustainable. Adopting a strategy of diversification should lead to greater stability in the revenue structure of nonprofit organizations, which potentially makes longevity and sustainability also more likely (Jegers 1997; Kingma 1993). Revenue Diversification & Endowment Building for the Future. This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. tion. It has been found that nonprofit organizations that post the biggest revenue gains, diversify their business model by devoting more resources to marketing, fundraising and events. Fiscally sponsored programs and organizations. Join us on Friday, October 5 at the Kenwood Interdisciplinary Research Complex to learn more about Revenue Diversification for Charitable Nonprofits. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions. What is the lesson for organizations under $1 million in revenue? posted byChase ZwisslerSummer 2018 Alumnus, ASU Master of Nonprofit Leadership & ManagementDirector of Operations of Organic Growth Marketing- San Diego, CAAs nonprofits explore ways to maintain sustainable growth, diversifying revenue has been a recurring focus for many. As you evaluate what sources are lower for your nonprofit, look at ROI for each revenue area. The lesson is age-old: Don’t put all of your funding eggs in one basket. Is it time to consider a joint venture? ... LEGO’s revenue in 2019 was $531.2 million US dollars ... 13 Omnichannel Customer Engagement Strategies for Public Services and Nonprofit Organizations; Strengthen your grant-seeking approach. Not-for-Profit. Friday, October 5, 201812:00 – 1:00 pm. However, empirical studies on the relationship between revenue diversification and financial health have produced mixed results. The purpose of this single-case study was to explore revenue diversification strategies used by 3 leaders of a small nonprofit organization in the mid-Atlantic region of the United States August 6, 2015 Many nonprofit organizations are quick to celebrate short term funding successes without exercising the proper degree of caution about the sustainability of those sources. Boost Visibility. This positive effect of diversification on revenue … Join HBI on Friday, October 5 at the Kenwood Interdisciplinary Research Complex, Room 1130 to learn about Revenue Diversification for Charitable Nonprofits. Visit the Nonprofit Quarterly website to read the article. This channel of funding is perfect for funds that will grow for future use and sustainability. Her background includes forty-five years of experience in nonprofits, primarily in organizations that mix grassroots community work with policy change. Fiscal sponsorship refers to the practice of nonprofit organizations offering their legal and tax-exempt status to groups engaged in activities related to the organization's missions. In a 2019 article, researchers ChiaKo Hung and Mark Hager analyzed 40 studies to understand the impact of revenue diversification on the financial health of nonprofits. Investors diversify … Therefore, the purpose of this study is to appraise whether revenue diversification in health and human services nonprofits will reduce revenue volatility taking into account various Consider donor-advised funds. The goal of diversifying revenue is to mitigate risks associated with uncertainties in funding. That being said, diversification of revenue is not a one-size-fits-all solution to an organization’s struggle to maintain growth. However, diversification has been shown to reduce overall portfolio vol atility for a given expected return (Wilson 1997). William Cleveland, Assistant Lecturer, Public & Nonprofit Administration, UW-Milwaukee; The diversification of revenue sources for charitable nonprofits has been written about extensively. Nonprofits can no longer use revenue diversification as fail-proof-safety; the more sources of revenue an organization maintains does not imply greater stability. Carroll and Stater Revenue Diversification in Nonprofit Organizations 949 (Wilson 1997). This article examines the effects of three major revenue strategies in nonprofit organizations. Evolving resource dependence is demonstrated by the shifting reliance on each source of funds: private contributions, government funding, and commercial activities. ... with research and reports on issues and topics that impact that sustainability and effectiveness of nonprofit organizations. DOI: 10.1177/0899764099283002 Corpus ID: 154695806; Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations @article{Froelich1999DiversificationOR, title={Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations}, author={Karen A. Froelich}, … Realize though, that each different type of revenue requires a nonprofit to operate a new business. 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). Diversifying your fundraising streams can open the door to building connections with local businesses, government agencies, and the general public. This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. In this case, your other revenue sources "crowd-out" the potential donations. Aside from its multiple toy sets, it has also branched out into multiple mediums to promote its brand. Highlights Approximately 1.41 million nonprofits were registered with the Internal Revenue Service (IRS) in 2013, an increase of 2.8 percent from 2003. Nonprofits learned a critical lesson about the importance of revenue diversification during the global recession. This occurs when potential donors shift their decision-making when they observe your other sources of revenue. Creating revenue diversification forces nonprofit leaders to create innovative programs and services, build resilience against adverse conditions, and establish a sustainable future. Similar findings had already been reported by Tuckman and Chang ( 1991 ) and Froelich ( 1999 ) who showed that diversification provides a means towards self-sufficiency, autonomy and independence. It typically involves a fee-based contractual arrangement between a project and an established nonprofit. Its revenue is not likely to decline with the economy. Although these findings are only suggestive, this study is a significant step forward in the development of a theory of nonprofit financial performance including the analysis of revenue diversification which This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. Nonprofits need to bring in revenue in order to operate. As economic and political climates change, so does the availability and reliability of their funding. A diversified portfolio of revenue helps alleviate the burdens associated with those uncertainties by spreading out the risk over multiple sources. factors, nonprofit organizations are increasingly searching for supplementary sources of revenue such as government grants, earned income, and investment income. Make sure that any one line isn’t too dependent on any one source (for example, your entire Foundation line is one $500,000 grant). Read the full story at Nonprofit Quarterly. Revenue Diversification by Non-Profit Organizations 5 August 2019. William Cleveland, Assistant Lecturer, Public & Nonprofit Administration, UW-Milwaukee. This positive effect of diversification on revenue … Beginning in the mid-1980s, Ruth spent a decade at the Boston Foundation, developing and implementing capacity building programs and advocating for grantmaking attention to constituent involvement.