I spent the first two-thirds of my career in for-profit before jumping the great divide into the world of nonprofit. As so many nonprofit leaders like to say, “nonprofit is different.” Unfortunately, some funders can interpret highlighting that difference as naïve. After all, “nonprofit” is a tax status, not a license to lose money. The universal laws of gravity and economics apply equally to all.
That said, donors are what makes us different. On one hand, we are luckier than for-profits because we know whom our brand advocates are: they are the people who give us money. For-profits do not have the same, easy insight into who loves them.
The concept of applying revenue management principles to contributed revenue may not be readily apparent. After all, in my previous article on this topic, I said revenue management is the science of optimizing demand, capacity and price. But, fundraising is the art of the relationship, right?
The two are not as far apart as they may seem. Yes, the relationship is different, but many of the same principles apply. Let’s start with the most basic premise: whether you are in for-profit or nonprofit, revenue management will not fix or compensate for bad budgeting practices. Sadly, many nonprofits practice cost based-budgeting. That means that they figure out what they want to spend money on in the coming year, how much it will cost, and then subtract out their revenue for the previous year. If there is a shortfall, the difference is typically doled out to the earned revenue and contributed revenue programs – e.g., the marketers and the fundraisers – as their growth targets for the coming year.
That is bad budgeting. No science went into determining these growth targets. Whereas, good budgeting starts with revenue. Fundraisers, in particular, should be consulted on what are reasonable growth targets, and where there are opportunities and risks for growth. That is the way budgeting is conducted in the for-profit world and it works. Bad managers will argue that fundraisers will sandbag their targets so they know they can beat them. Sometimes, yes. I am not arguing you take their number as gospel, but rather as the starting point for the budget. Then, as the budget evolves, work with them to set realistic stretches to those numbers. You are much more likely to have their buy-in if they are involved in setting the final target.
Once we have a sound budget as a baseline for fundraising, let’s identify the role revenue management practices play in it. It begins with data. You cannot implement a good revenue management strategy for earned revenue without at least two years of data. In a similar manner, you cannot really revenue manage a donor pipeline without two years of giving data. People who are fundraisers or have been will recognize the truth in this statement: fundraising is the most specialized form of sales in the world.
As fundraisers, we sell the intangible: a relationship with the organization and its mission. While the product may be intangible, the tactics are largely the same. The starting point for good revenue management in fundraising is data. Knowing how donors give, when they give and why they give is the foundation for finding new opportunities to deepen their relationships with the organization and the mission.
If you can get donors into a recurring giving program, then revenue management practices become much more applicable. A reliable, consistent stream of donor revenue enables you to not only collect data, but also better forecast cash flow. In 2018, an industry report, The State of Modern Philanthropy, “found that recurring donors give 440 percent more over their lifetime than one-time donors.”
There are a few revenue management best practices for fundraising.
First, give donors the option to turn their donation into a recurring gift on your online donation form, and offer options to set the recurring schedule as weekly, monthly, or annually. And, allow donors to manage recurring donations themselves and update their information through an online portal.
Always collect the payments through auto-pay, credit card or ACH.
Most importantly, do not make the mistake of assuming that a recurring donation is automatic or evergreen. The term “revenue management” is an active verb. Someone must continuously monitor and manage the process. Set up your system to receive notifications when donations fail so you can take action to correct the donation.
(We have a local NPR station that continuously broadcasts to donors asking them to keep their credit card data up-to-date. I hate this. It announces publicly that they are passively delegating revenue management to the donor instead of actively managing it in house.)
Lastly, most people don’t realize this but moves management is a form of revenue management. Moves management plans donor communications, cultivation and stewardship in a data-driven, targeted manner. It must take into account all the various ways in which a donor interacts with your organization. It uses the data we mention above to not only identify where the donor is currently, but helps you grow their relationship. Many donor management systems, leveraged properly, automate the moves management process. In order to automate it effectively though, the organization must be zealous about requiring fundraisers to document contacts and donor gifts effectively.
There are other revenue management tactics specific to other donor types such as corporate sponsors, events, philanthropic foundations, trusts and endowments. Our Fundraising Search can help your nonprofit assess its fundraising program and implement better revenue management practices to ensure sustainable revenue growth.