Linking Revenue Generation and Organization Performance
In this era of scarcity and seismic change, high performance matters more than ever. The social and public sectors simply don’t have the resources to depend on efforts that are based primarily on good intentions and wishful thinking rather than rigor and evidence. They are increasingly steering resources toward efforts that are based on a sound analysis of the problem or need; grounded assumptions about how an organization’s activities can lead to the desired change; assessments to determine whether hard work is paying off; and a desire to keep getting better over time.
In my years of working to help nonprofits organize and plan for revenue growth, I have seen the “good intentions and wishful thinking” referenced above replace a rigorous, evidence-based strategy for revenue growth. Sometimes, lacking organizational systems and processes for measuring past revenue performance are to blame. Other times, senior leadership’s (board and staff) allegiance to a once-relevant mission keeps an organization from addressing shifts in marketplace behavior. If these dynamics (often linked) are addressed head-on, an organization can more easily move toward higher impact work and stronger revenue streams.
In my consulting work and as a long-time senior executive working inside nonprofits, I have observed that far too many organizations ghettoize revenue generation into ill-prepared development departments and development committees of the board. This article is dedicated to viewing revenue growth and development in the much larger context of high performance at the organization level.
The Performance Imperative
In December 2012, I became a founding member of what has become the Leap of Reason Ambassadors Community, now 86 people strong and growing. This community represents practitioners, professors and consultants, funders, nonprofits and thought leaders in the US and Europe — some of the best minds in the social sector. The group has convened with the sole objective of working to improve performance in the nonprofit sector by developing and endorsing a common definition of “high performance.” That definition is captured in The Performance Imperative, which defines high performance and outlines seven organizational pillars that, together, provide a framework and pathway for moving toward higher performance.
Although The Performance Imperative contains elements of high performance that go well beyond revenue generation (areas which are not the focus of this article but well worth reading), I have celebrated its creation and incorporated it into my work and teaching because The Performance Imperative places revenue generation and fiscal sustainability in a larger organizational context. This makes good sense because an organization generates revenue as a means to an end, that is, to enable the organization to execute against its mission and deliver outcomes and impact for those it serves.
Put in the simplest of terms, high-performing programs will fail without consistent revenue streams to support them. High-performing leaders cannot be attracted or retained without consistent revenue streams to compensate them. And, to get to the heart of the matter, revenue for programs and people (and longer-term financial sustainability) cannot be built without a disciplined approach that encompasses far more than the activities of a few fundraisers and dedicated board members.
Pillar 4: Financial Health and Sustainability
Pillar 4 of The Performance Imperative is all about financial health and sustainability. Of course, no one would argue the value of financial health and sustainability, and these words are bandied about in just about every board meeting and strategic planning process across the country. However, The Performance Imperative goes well beyond a statement of the obvious by further defining what high-performing organizations actually do when it comes to fiscal health and sustainability*:
- Take charge of their organization’s financial destiny
- Establish systems for financial stewardship and accountability
- Build budget processes oriented toward achieving results
- Share financial results transparently
- Nurture external financing relationships
- Operate with margins that allow balance sheet building
- Understand the organization’s cost structure
- Use financial models to make clear and transparent the organization’s financial condition
- Use discipline in compliance with all regulatory requirements
*I encourage you to read page 10 of the report, which provides useful detail on the above attributes of high-performing organizations in the financial health and sustainability area.
What are the practical applications of these behaviors when it comes to revenue generation? I encourage you to consider these best practices for becoming a high-performing organization in the area of revenue generation:
Strategic planning and revenue planning are integrated organizational processes. Funding a strategic plan is not left to the development department and development committee once a strategic plan is approved.
Development committees act as facilitators and stewards of the board’s revenue generation responsibilities and activities, and not as the subset of board members solely responsible for revenue generation.
- Organizations engage in rigorous, regular processes for measuring revenue generation performance and outcomes and for evaluating future revenue generation opportunities. (To learn more about tools to help organizations properly manage revenue growth and planning, read this earlier post.)
Placing revenue generation and financial health and sustainability in the larger context of overall organizational high performance — and combining that perspective with practical tools and processes that help to deliver the above — will ensure that organizations are able to develop and sustain the revenue sources needed to deliver real, long-term impact.
Roll up your sleeves to learn more about revenue planning in our upcoming webinar, “How to Grow and Diversify Your Nonprofit’s Revenue” on November 19, 2:00-3:30 pm ET.
NANCY OSGOOD is founder and president of The Osgood Group, a management consulting firm that helps nonprofit organizations and socially focused businesses improve performance, effectiveness, and sustainability.
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