Revenue diversification can be an effective strategy to reduce the risk of being dependent on a certain source of revenue, particularly if there is a concern around renewability or instability of that support. However, pursuing diversification for its own sake can itself be a risky endeavor. Expanding into a new revenue stream requires a significant investment in the infrastructure, skills, and capacity to effectively manage and grow that income source. Seeing results from that investment may take longer than leaders expect.
Revenue flexibility is an indicator of how much of an organization’s revenue is available for immediate, general use and how much is restricted by donors to specific purposes or time periods. Funds restricted for a specific purpose or period of time cannot be used to subsidize general operating costs unrelated to the expenses prescribed in the grant agreement.
Revenue predictability indicates the level of certainty of receiving revenue in current and future years. Determining your organization’s risk tolerance when it comes to including uncommitted sources is a key first step and one that should be informed by past trends (such as track record of fundraising performance) along with future forecasts.
Download this Microsoft Excel spreadsheet and enter the data for your organization.