New products, crowd funding and social impact bonds – three ways to diversify your NFP’s income streams

 

Many not for profits are looking beyond traditional grants and fundraising to increase revenue and maximise their impact. From user pays products to crowd funding and social impact bonds. Even if you’re not yet ready to diversify your NFP’s income streams, it’s worth keeping an eye on what’s out there, as new opportunities are emerging all the time.

 

The latest ACNC Australian Charities Report released in December 2017 shows that across the charity sector half of sector income is currently sourced outside of fundraising and government grants. Other income sources includeproduct sales, membership fees and user pays services.

 

User pays and product driven revenue

In some industries the shift from block funding to user pays has been mandated, such as the seismic shift the NDIS is creating in the disability sector. There are also a number of not for profits who have chosen to release paid products and services to deliver value while increasing their revenues. There’s The Hunger Project who have partnered with McKinsey and Company to co-design their leadership programs, taking leadership lessons from their projects in Uganda, Bangladesh and beyond, and translating them into a leadership development program for corporate executives. Their clients include the Commonwealth Bank, and course fees are channelled back into The Hunger Project’s in-country programs.

There are an increasing number of social enterprises that have been launched with products at the centre of their business model. These include international examples such as Warby Parker glasses and Toms Shoes where every sale makes products available to people living in poverty. In Australia, Guide Dogs have recently branched out into the product driven space with Beau’s Pet Hotel in Adelaide. Then there’s Thankyou, who started out with Thankyou Water before branching out into an expanded product line from muesli to bath products to nappies.

The key to success in product based revenue is to make sure that you get bang for your buck – that your customers get value for money, and that the time, effort and resources you throw into product development pay off at the end of the day. It’s the challenge of this balancing act that has resulted in Thankyou’s announcement in December 2017 that they are discontinuing their food products to focus on more successful product lines and new projects.

Crowdfunding

The Thankyou team have repeatedly demonstrated that they’re not afraid to experiment, to try new things, and to pivot in a new direction.  One of Thankyou’s recent experiments has involved diversifying beyond product driven revenue, to experiment with crowdfunding, with their Chapter One campaign kicking off in 2016. Traditionally crowdfunding involves raising funds over a limited time periods for a specific project, sometimes with rewards offered for different levels of donations. Technology platforms like Kickstarter and Australia’s own Pozible are tailor made for crowdfunding campaigns.

Successful crowdfunding campaigns come down to a clear vision, powerfully communicated, and sufficient marketing clout to ensure you make a dent in your fundraising goal early in your 30 day campaign. That way you can ride that early momentum to ensure you hit your fundraising goal.

Thankyou have been behind a number of high impact marketing campaigns, and their crowdfunding campaign for Chapter One was no exception. Their campaign video received more than 500,000 views and they raised more than $1 million in their 30 day campaign.

Social Impact Bonds

Social impact investment is gaining momentum in Australia. Social Ventures has closed a number of social impact bonds around Australia, including Hutt Street’s Social Impact Bond, Australia’s first targeting homelessness, through the Aspire Program, which launched in July 2017. As we discussed in last month’s Foreword article on implementing innovation, the Aspire Program is allowing Adelaide’s Hutt Street Centre to expand beyond their traditional service offering of meals, social work and support services to people facing homelessness. The Aspire Program will see Hutt Street work with up to 600 people to permanently end their homelessness through long term intensive case management, housing and employment pathways.

We recently spoke to Ian Cox, CEO of Hutt Street, about the Aspire social impact bond, and the key skills required for influencing funders to invest.

‘In terms of influencing you have to be passionate, you have to be values driven, you’ve got to know where you’re going. You certainly can’t pitch to government or big business if it’s not outcome focussed. At Hutt Street we often have fantastic ideas. For example, looking at getting mental health workers and drug and alcohol workers at Hutt Street. The staff will say that that’s what we should be doing, but we really need to look at longevity. If I get some funding for a year, is that really going to help our friends? [Hutt Street refers to their clients as friends]. If we’re going to struggle to get funding the year after, then we’re not helping long term.

‘The influence has got to be really strong. You’ve got to understand where government’s thinking is, and where their balls are lining up. For corporates as well you need to understand do you actually fit the corporate’s strategy. Sometimes they’ll pick one charity or they might have a couple of charities. Sometimes homelessness is not the sexiest thing as well. You’ve got to find the right opportunities and the right people, and that takes time, and you get lots of knock backs. You have to continue persevering, you have to be really strong in who you are.’

A different perspective on fundraising

Ian also had some valuable insights on fundraising. ‘In terms of some of our fundraising, people understand where our dollars are going. They’re not going to pump up those of our programs that are already government funded. Government doesn’t fund our meal centre or our day centre, the showers, the lockers, the government doesn’t fund those services. That’s totally funded by our community, and the community gets that.

‘You have to understand your drivers and why people support you, and it took us a long time to get to the heart of that. You need to ask why people would support your organisation, and why people won’t support you, which in some ways is the more important question. The number one answer for us at Hutt Street was fear. People will sometimes criticise homeless people and services in an area where, god forbid, we want to implement another service and that is something we deal with.

‘Fear is one of the reasons people won’t support Hutt Street or homelessness, and we have put a lot of thought into that. How can we alleviate some of that fear by having people come into the centre with our Angel for a Day program or by participating in Walk a Mile in My Boots. 13,000 people participated in Walk a Mile this year. You’re walking amongst our friends – they’re walking too.’

CBB has participated in Walk a Mile for a number of years, and it’s always great to see the community at the Hutt Street centre out in support, enjoying the music and the crowd as they walk past. Hutt Street has also helped break down the barriers by making powerful use of storytelling with short videos showcasing the stories of their friends as part of the Walk a Mile campaign.

Finding the right fit

The right revenue model for your NFP will depend on your sector, your business model, your organisation’s strengths, and the skillsets of your team. Before you explore which revenue streams might be the right fit, it’s worth asking a few critical questions.

  • How strong is your current revenue model? Do you have multiple income streams? Is your income stable, growing, or in decline?
  • Does your constitution limit your options for diversifying income streams?
  • What’s trending in your sector? Is there wholescale change? Are there new players shaking things up? How does your income mix compare with your peers?
  • What skills does your team possess that might be useful for launching a new revenue stream? Do you have internal experience in product development? Have you got experience pitching to investors? How savvy is your marketing team?
  • Do you have sufficient funds to invest in developing a new product or resourcing a social impact bond or crowdfunding campaign?
  • Do you have the key ingredients to craft a compelling message for a product launch or investor or crowdfunding pitch? Are you crystal clear on your purpose? Can you demonstrate the measurable impact of your projects? Do you have documented or video case studies of client success stories?

Answering these questions – honestly – will help you to determine if you’re ready to build and new income stream and to select the best fit for your organisation’s need.