INCOME DIVERSIFICATION: FIVE THINGS CHARITY LEADERS NEED TO CONSIDER

“Charities need to diversify their income” is a phrase we hear often at CAF. Of course, it makes sense for any charitable organisation to think about sustainability, attract the right income mix and spread its risk. But how is this achieved in practice?

There are as many ‘right’ ways as there are different models, causes and sizes of charity. Currently, no long-term sector data exists showing how charities have changed their income over time and the impact this has had on their mission, reach and impact. It’s about finding the right path for your charity.

While working with and providing strategic advice to charitable organisations of all kinds, we’ve learnt that there are some key things for a board to consider if they want to make progress towards a more sustainable future.

1  Fully understand your current income mix

There are two levels to this. Firstly, you need to work out what type of funding you currently have. For example, does your income come from trusts and foundations, companies, individuals and major donors or perhaps contracts, charity direct debits, earned income or social investment? Secondly, you'll need to identify any diversity within these types. For example, do you have one major donor, or ten? 

Many boards we meet do not have a handle on this and are often unaware of how diverse their current make-up already is, as well as its longevity and where the risks are.

It is also important to consider to what extent core operations are covered by pro bono support that would otherwise have a cost attached. Do you operate full cost recovery and if not how comfortable are you with this?

2  Evaluate what others are doing

This requires analysis to relate it to your context. All charities are different and for good reason, but by looking at your ‘competitors’ you will gain insight into how likely it is you can make new sources of income work for you. Cause, operating model and size can all make a difference in how you can attract and use new sources of income. 

3  Assess the potential from your networks

Look at this through the lens of both direct giving from individuals you know and can easily attract, and from potential partnerships with other charities. What are the opportunities to secure funding, pool resources or even to merge functions/organisations over time?

4  Be honest about your ideal income mix, investment and risk appetite

These factors all relate to achieving your charitable aims. Diversifying income doesn’t happen in isolation, it can require changes to operating models, strategic focus and governance. It also has a potential impact on outcomes and reach. You might not be replacing like for like.

5  Be realistic about the time it will take

All the organisations we have worked with needed time to work out what mix is right for them, make any internal changes and create the time and space needed for a strategic focus on diversifying income. 

There is no one model for every charity and it’s vital to ensure everyone is pulling in the same direction with the same sense of what is realistic in your context. Governance needs to be in place and ready to create and capitalise on more diverse income streams.

We regularly hear from boards that a lack of capacity is the main barrier to them starting any of this. All of it takes time and effort from the board and wider staff; and without specific funding identified to cover the day job we know it can be very challenging. 

So in addition to helping charities tackle these strategic changes, we also work with donors who give through CAF to make them aware of these challenges. It's important that more investment can go into supporting charities through this journey.