How can charities diversify their income streams?

They were looking to step away from traditional fundraising methods, as the early warning signs indicated a waning public appetite for direct debits and voluntary donations. Competition for grant funding and donations of all kinds is ferocious – it is time to consider more sustainable options. Some of the innovative emerging income streams under exploration include impact investment, venture philanthropy, virtual currencies, micro-financing and crowdfunding.

In its ‘Road Ahead’ 2021 report, the National Council for Voluntary Organisations (NCVO) highlights the vital role the charity sector needs to play in rebuilding a post-pandemic United Kingdom. Key messaging within the report focuses upon the need for each charitable organisation to analyse and evaluate their present funding environment, strongly advising charities to “…diversify their income streams and collaborate with sector partners where this results in efficiency savings and better outcomes for beneficiaries.”

To diversify, charities need imagination and a fundamental shift in mind set according to industry experts as they transition from the traditional model of grant funding to selling products and services as a means of generating a significant revenue stream.  Whilst it does not mean they will have to dispense with services that do not generate cash flows, there will need to be a focus on knowing where the surplus will come from to pay for them.  As a starting point, some consultants propose ‘sweating organisation assets’ – leasing capital assets, such as buildings and equipment, is an obvious place to start, generating a rental income stream. There is even potential to generate revenue by harnessing anonymised customer data, although the strictest adherence to both legal and ethical guidelines is necessary to avoid falling foul of the Information Commissioner’s Office.

To take diversification a step further and identifying an innovative initiative that could deliver a long-term, sustainable, funding stream, charities can move to establish a social enterprise within their organisation, and thus create a new revenue stream to sit alongside its traditional funding opportunities. 

The advice from the experts is clear – “Think like a…start-up,” says Reuben Turner, leading fundraising consultant. “…ask what untapped audiences are out there, what their needs are and how we can fulfil them, and then think about how that can provide a source of income.”  All new services and products will need to be carefully though through and strategically planned in advance of launch.  Knowledge, buy-in from stakeholders and planning are critical, but where a charity can create a product or service that the public at large consider useful and valuable, then charity spend safely moves itself from the discretionary category to essential expenditure for consumers, securing crucial future cash flows in a world of funding uncertainty.