THE TOP SIX QUESTIONS ALL ORGANISATIONS NEED TO ASK
When organisations sit down to design new revenue streams, ideas from the small to the outrageous can emerge. When there are differing perspectives around the table, how does one determine what makes for robust revenue streams that are worth pursuing or maintaining?
Having a strong set of criteria to assess your revenue generation activities against can streamline the process that boards, executive teams, sub-committees, and cooperatives go through to make important decisions.
Below are my top six questions to ask when determining whether a revenue stream is worth creating or hanging on to:
1. Does this income stream support the fulfilment of our strategy?
The need to align your income streams to your strategy cannot be understated. Where there is a real (or perceived) disconnect in the pursuit of your purpose with the accepting of funds from entities that contradict that purpose, there will always be a major problem. Your strategy is the roadmap for your organisation and what your people and stakeholders will engage with and champion. It is vital your income generation activities align closely.
2. Do we understand the risks?
The definition of risk as a verb includes ‘to expose to the chance of injury or loss’ and ‘to venture upon, take a chance’. There are positive and negative connotations of risk, for it involves perceiving the uncertainty of outcomes, but it isn’t something that should be totally avoided? If organisations only thought of risk as dangerous, they wouldn’t do anything new. Instead, a risk assessment needs to be carried out to determine the legal, moral, financial, relational, reputational, and even environment or social risks associated with your new endeavour, and what level of risk is acceptable given the organisation’s capacity, purpose, systems, resources and expectations of members, stakeholders, and customers. The Board should document their risk appetite for issues, which when done, helps executives and teams understand the boundaries for assessing risk and considering new projects.
Risk Case Study:
Biennale of Sydney: The 19th Sydney Biennale was engulfed in controversy ahead of its 21 March 2014 opening with close to half the 90 participating artists signing a petition against a leading sponsor of the event, Transfield, a Sydney-based construction giant which had lucrative contracts with the Australian Government for the provision of services for the nation’s controversial policy of mandatorily detaining asylum seekers on Manus and Nauru islands in Papua New Guinea.
The decision to accept sponsorship money from Transfield as an income stream, did not align with the values of the artists of the event and what they believed were the values of the Biennale.
3. How will you engage your stakeholders in the journey?
Your stakeholders – both internal and external – will have an opinion about your revenue streams; whether you have heard it or not. Especially with new income streams, it is important to review your stakeholder map and check off which group/s you believe will support or detract from the initiative.
With a growing movement for organisations to address their ESG (environmental, social and governance) issues, stakeholder dialogue is more important than ever before. Additionally, I have seen time and time again, the most successful revenue streams conceptualised and realised from conversations with members, donors, staff, and volunteers. They are the people that know your organisation best and can come up with the most creative (and profitable) ideas. Remember, not every idea has to be successful. However, how much risk you can take before you find that ‘gold nugget’ is an important conversation. Failure is an important part of success as each failure creates new learnings, thinking and opportunities.
An important consideration for a community with associations is the constitution. If revenue stream changes require constitutional change, then this requires another level of engagement and consideration.
4. Do you have the right resources and capability to deliver?
Whilst there is no shortage of ideas to raise revenue, do you have the people, creative thinking, staff or volunteers with the right skill set, experience, and time to do the work? Often, the excitement of the planning day sets some unrealistic expectations for staff members, already over-laden with business-as-usual work and commitments.
When determining new revenue streams, we need to really understand what skill sets are required to get it off the ground, and whether you have appropriate resources to either support skill development, buy in skills or bolster the team. In fact, research suggests one of the top reasons 70% of projects fail to meet timelines, budget and expected results is ‘not enough skilled staff1’.
5. What are the real costs, and when will it become profitable?
Organisations need to understand not only new costs, but also how much time and resources it would take from existing team members and projects to get up and running. When building a budget consider not only additional investment costs but also hidden costs around meetings, approvals, consultation, digital marketing, bookkeeping, legal, etc. Developing financial models on income and break-even points is key to understanding at what point you’ll recoup costs and start turning a profit. Contingencies, ongoing investment costs, resourcing and additional marketing efforts also need to be factored in.
6. What is a realistic timeline to achieve our goals?
Finally, understanding the time a new revenue stream would take to get off the ground is vital to the consideration of your resourcing, risk assessment, fulfillment of your strategy, the community or stakeholder engagement, and the overall success of the establishment of new income streams. You’ll need to understand the ROI of your revenue streams and how long they will take to come to fruition e.g., changing your membership model or becoming a registered charity (Deductible Gift Recipient in Australia). If your usual ratio of return is 1:5 within the financial year, how will the new revenue stream sit? Will there be return in the first financial year of investment? If not, when?
Reviewing project plans and ensuring timeframes are met will help prevent budget blowouts and limited outcomes.
By using this criterion to assess your income generation activities, you’ll be able to identify any challenges or opportunities early on, dismiss ideas that don’t fit, or refine your ideas to get your organisation’s revenue streams up faster and working for the long run. If you’d like to talk about revenue generation, get in touch.