Five things for charity leaders to consider when diversifying income

We often hear that charities should look to diversify their income. Of course, it makes sense for any charitable organisation to think about sustainability, attract the right income mix and spread its risk, but it’s become even more pressing in the wake of the pandemic and amid the cost-of-living crisis. So how is it achieved in practice? 

There are as many ‘right’ ways to diversify income as there are different models, causes and sizes of charity. As the CAF Charity Advisory team, we’ve provided strategic advice to charitable organisations of all kinds, and have learned over the years that there are some key things for a trustee board to consider if they want to progress towards a more sustainable future. 

Here are five key things to consider when looking to diversify your charity income.

1. Understand your current income mix

There are two aspects to this. Firstly, you should understand your current funding. 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 should identify any diversity within these types. For example, do you have one major donor, or ten? Are you receiving restricted or core funding?   

Many boards we meet do not have a good grasp of this and are often unaware of how diverse their current income is, as well as its longevity and where the risks are. 

How has any Covid-19 emergency funding impacted your organisation? Have you been left with more reserves? Have you had a shortfall in income? How are you going to invest it? Have you got a lot of grant funds to be spent within a defined space of time? All these key questions will impact how your organisation will look in the near future. 

It’s also a good idea to consider the extent to which your core operations are covered by pro bono support that would otherwise have a cost attached. Do you have a clear idea of how much funds are tied to projects cost? Do you operate full cost recovery and if not, how comfortable are you with this?

2.  Evaluate what others are doing and innovate

All charities are different and for good reason, but by looking at other organisations 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. 

Digital and technology played a huge role during the Covid-19 pandemic, with cashless giving making remarkable growth. Digital fundraising tools are often versatile and can be inexpensive, so are worth adapting what you have already invested in your digital channels and making them work alongside direct mailing campaigns and face-to-face campaigns to reach out to more supporters. 

3. Assess the opportunities from your network

Trust in charities has been high for the past couple of years , according to our UK Giving Report. 

Look at what other opportunities are available to secure funding, pool resources or even merge functions or organisations over time. How can you strengthen your relationships with major donors, such as trusts and foundations, for continued support for core costs?

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

These factors all relate to achieving your charitable aims. Diversifying your 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. Like many charities, if you have accumulated some reserves, this will be a good time to think about long-term investment beyond keeping it as reserves. 

5. Be realistic about timelines

All the organisations we have worked with have needed time to figure out the mix that 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-size-fits-all model that will work for every charity so it’s vital to ensure everyone is working in the same direction with the same idea of what is realistic in your circumstances. Governance needs to be in place and ready to create and capitalise on more diverse income streams.
We often find that a lack of capacity is the main barrier to starting this process. It all 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.

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