How charities can diversify income streams in 2021
This past year has shone a spotlight on the issue of charity funding.
Many charities, small and large, have struggled to make up the shortfall caused by the pandemic, as government grants and public fundraising opportunities have been slashed.
So, with the vaccine roll-out offering us hope, how can charities strengthen their finances through income diversification in 2021?
The economic climate
The Covid-19 crisis has certainly damaged the economy: unemployment has risen, and charities’ income has been cut. However, it’s not yet certain how long-lasting the effect will be.
In its Road Ahead 2021 report, the National Council for Voluntary Organisations (NCVO) highlights the role the sector needs to play in rebuilding Britain. And it cautions charities against sticking to long-term or even medium-term strategies.
Instead, it recommends they conduct an analysis of the funding environment to develop “an agile approach with a strong, clear purpose, good insight and an ability to make and execute decisions quickly”.
It also states: “Where possible, charities themselves should seek to diversify their income streams and collaborate with sector partners where this results in efficiency savings and better outcomes for beneficiaries.”
Since the NCVO report was written, the success of the vaccine campaign in the UK has led to a surge in economic optimism. So should charities stop worrying?
Income diversification is always essential. It’s just that the pandemic has highlighted the issue of charity income streams.
Charlie Medcalf of Pilotlight, which provides business support to UK charities, says that all sources of charity income have come under pressure over the past year.
Government funding has been cut, so competition for other sources of grants has increased. Traded income – especially important for arts organisations – has been slashed, and direct debits are down too. Charities have delved deep into their reserves.
Ms Medcalf suggests that, as a rule of thumb, no more than 25% of your income should come from any one sector – for instance corporates, grants, contract delivery, or public donations.
But just how can you achieve that? She suggests three simple tips:
1) Know your charity, what you’re good at and who you know.
2) Know the market, keep an eye out for new opportunities, and share your knowledge.
3) Plan your next steps, with regular reviews and risk assessments of current income sources.
Diversification in action
One charity that’s taken steps towards further diversification is Macmillan Cancer Support, which expected its income to drop by around £95 million in 2020.
Its executive director of fundraising, Claire Rowney, told Third Sector last summer that the charity had already made some swift changes. For example, by developing virtual equivalents to its challenge events.
But she added that lockdown has accelerated the need to fundamentally change the way charities interact with donors. Many funders want not just to provide money, but also be part of the impact.
“The charities that will win financially are the ones that will enable people to genuinely and authentically have impact on their causes,” she says.
Fundraising consultant Leesa Harwood agrees that charities must think beyond traditional income streams, such as corporates and trusts. Rather, they need to evolve their whole organisation so they can explore emerging income streams – for instance venture philanthropy, virtual currencies and crowdfunding.
She suggests they consider “sweating organisation assets” like renting out buildings or even harnessing anonymised customer data – while meeting the strict legal and ethical guidelines, of course.
Connect Assist – your consultancy partner
The pandemic has drastically changed the charity funding landscape. It can be hard to get an objective view of your own charity’s existing funding mix, let alone discover new opportunities.