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Income Generation

A feature in Charity Funding Report March 07 highlighted the benefits of having more than one source of funding and looked in more depth at commercial sponsorship. Following that theme, we now consider income generation.

Seeking sponsorship demands a different approach from that of applying to Trusts and Foundations for grants. Generating income adds a further dimension. Major charities may have a dedicated Business Development Manager or similar. Others may benefit from commissioning an independent, objective view to identify the potential for income generation.

So what are the benefits and what is needed to generate income?

Unrestricted funds

Earned income is unrestricted. It can be used at the organizations discretion and comes without the need for monitoring and reporting to third parties. Building a reserve fund to cover unforeseen costs is sound management, but notoriously difficult for grant funders to support. Any surplus from earned income would be ideal to build such reserves. Alternatively, surpluses can be used to develop new services or invested in capacity building.

Sustainability

Increasingly, funders will ask for an exit strategy - what will happen when a grant comes to an end. Working during the grant-funded period to identify potential earned income is a valid route to sustainability. Exit strategies need to be planned well in advance; three months before the grant runs out is too late!

Generating income

Think about the services you offer. Many charities offer services for free, because that’s what they have always done. So think the unthinkable. Can the beneficiaries pay? If not the full cost, then at least a proportion. If beneficiaries really cannot pay, whose costs would rise if you were not providing your services? Consider a service level agreement with them.

Could you sell your services directly to other sectors? Do you offer, say, stress or other counselling services to the community? Businesses may welcome a sympathetic service that can be accessed by their employees and should be prepared to pay for it.

Are there skills and knowledge intrinsic in what you do? Is there a market for them? Could you - or better still, your beneficiaries - advise businesses or professional service providers, e.g. How to write and present material in order to access hard to reach communities; how to make a front office welcoming and accessible to people with sensory difficulties.

Could others learn from what you have done? Offer workshops or host visits, charging a realistic fee for your time and costs. Do your services, and anecdotes about them, make for an entertaining talk or presentation - try voluntary and social organizations that are often looking out for speakers and are usually prepared to make a donation or pay a reasonable fee.

Don’t overlook the tangible assets. Do you have an interesting building or outdoor location that could be used out-of-hours for company or social functions, even wedding hire?

Voluntary sector delivery of public sector services

The nature of charitable activity means that the public sector is the predominant potential customer. This generates much, often heated, debate with arguments advanced that the public sector uses voluntary and community organisations as a cheap route to meet statutory obligations. Without discussing the politics, in many instances the charitable provision of services pre-dates the public sector; delivers with a greater focus on its beneficiaries; may be cheaper - but more tellingly, may be more cost effective.

There are suggestions that public sector service commissioners have a project-based approach to the costs they will meet and exclude core costs. Anyone costing such a service would be well advised to consider, and demonstrate, the true cost - New Philanthropy Capital and ACEVO have published an excellent toolkit

Too much like business?

Many may feel that earned income is incompatible with a charity. However, the need for charities and other voluntary sector organizations to learn from business has been recognised. For examples, look at Change Up and the drive towards -Full Cost Recovery-, which is a re-statement of a well-established business principle.

Nobody would claim that balancing the demands of service delivery, supporting beneficiaries and earning income is easy. Yet this is what social enterprises are all about. Setting aside definitions, in reality the boundary between charities and social enterprises is blurred and neither has a monopoly on good ideas or best practice.

Setting a price - Profit or cost recovery

When setting a price for products or services a number of factors will come in to play, not least the amount that the customer can afford to pay. A further question is whether the organization should aim for cost recovery or to make a profit. Some would argue that making a profit is not compatible with charitable status, but this need not be so. A saying familiar in social enterprise circles is -All enterprises must make a profit; it’s what is done with the profit that makes the difference-. The Charity Commission recognizes the place of both income generation and profit and offers excellent guidance, see for example

Conclusion

In an increasingly competitive funding environment, charities and voluntary sector organizations need to consider diversification of sources of income. Income generation should be considered as one of a number of options in establishing a funding strategy and building a portfolio of funding streams.