Business Planning for Growth and New Revenue

 

Part 1 of Business Planning for Sustained Mission Impact

 

This is the first of two articles on nonprofit business planning. Here we focus on growth and new revenue opportunities. The second article, Business Planning When an Organization Needs to Contract, will examine how business planning can help organizations reduce their scope and redesign core programs.

Organizational growth and new revenue can help nonprofits extend their impact, but both require a close look at how the proposed effort would work. A nonprofit with a successful program may see an opportunity to reach new communities or help other organizations adopt its approach. Another might consider whether charging for training or services could generate revenue to support its mission. Business planning helps leaders examine these possibilities before committing — looking at who would participate or pay, what the work would cost, and whether the organization has the capacity to deliver it well.

In our articles Sustaining the Mission: Planning for What Comes Next and From Reaction to Choice: A Decision Lens for Mission Sustainability, we considered the different paths nonprofits can take to sustain their impact. Once leaders identify the path they want to explore, business planning helps determine whether it is feasible, affordable, and aligned with the organization’s capacity.

A new initiative can consume staff time and cash well before it produces results. An expansion can bring additional revenue while increasing costs even faster. Nonprofit leaders can use business planning to test these possibilities before making commitments that may be difficult or costly to reverse.

The key considerations below can help nonprofits assess growth and new revenue opportunities through business planning.

 

Start With a Strategic Decision

Business planning starts with a strategic decision the organization is considering, such as bringing a local program to a broader audience or delivering services through a partner. The work examines what it would take to succeed, including the revenue, staffing, and investment required.

The scope of business planning should follow the decision. An organization considering a new training service may need a focused assessment of prospective customers, pricing, delivery costs, and staffing. A nonprofit contemplating a substantial change in its service model may need to examine the economics and capacity of the whole organization.

Leaders also need to be prepared to change their minds. The analysis may reveal that an idea would require more investment than the organization can afford, or that fewer participants would be willing to pay than expected.

Our DARE² Succeed methodology — described in our book The Nonprofit Business Plan — is built around that reality. It guides leaders through four phases: Design, Assess, Research, and Evaluate & Elaborate. We begin by clarifying the decision that needs to be made, then test the assumptions behind it through assessment, research, and analysis before leaders commit to a course of action.

 

Consider Need and Interest

A successful nonprofit may have a well-regarded program that other organizations have asked to adopt. While those inquiries are encouraging, they do not yet tell the nonprofit how many organizations will participate, what support they will need, or who will pay for it.

Market research can help explain what would make adoption possible or prevent it. A prospective partner may value the program but lack staff to implement it. Another may have the capacity but need a funder to cover the cost. A third may already use an alternative that is less expensive or easier to deliver. Talking with organizations beyond an existing network, including those that have declined similar offerings, can reveal barriers that enthusiastic supporters overlook.

For nonprofits, this inquiry must also address access. The people who benefit from a service may be different from those who adopt it or finance it. A fee that covers costs may exclude the very communities the organization hopes to reach. Understanding these relationships helps leaders determine whether earned revenue, philanthropic support, public funding, or some combination can support the intended impact.

 

Work Through the Full Economics

The appeal of a new revenue stream is understandable when existing funding is uncertain, but earned revenue brings its own costs and obligations. Developing a curriculum, recruiting customers, administering agreements, and providing ongoing support all take time and money. Those costs need to be included when assessing how much a new offering could contribute.

An initiative that eventually covers its costs may still need several years of subsidy. Leaders need to know how much cash it will require before revenue catches up with

expenses, and whether the organization can afford a slower start.

Financial modeling lets leaders see how the plan holds up under different conditions. Lower participation or greater demand for customer support can change the economics considerably. Testing those assumptions helps identify where a modest change would create a serious funding gap.

A mission-critical service may require ongoing subsidy. Business planning can make that requirement explicit, allowing leaders and funders to assess whether the subsidy is justified and how it can be sustained. Equally, the analysis may show that a proposed revenue venture would contribute too little to warrant the effort.

 

Examine What the Organization Can Deliver

Growth can change the work of an organization considerably. Delivering a program directly requires different capabilities from helping others deliver it. Training, quality assurance, technology, and partner support may become central responsibilities. Existing staff may have valuable expertise without having time to take on those responsibilities.

Through our DARE² Succeed methodology, nonprofits can test assumptions, evaluate alternatives, and determine whether a proposed strategy is feasible, affordable, and aligned with organizational capacity.

The analysis may point to starting with a pilot, narrowing the initial audience, or working through partners. It may also suggest postponing an expansion until the organization can maintain program quality. The plan should account for what happens to current services while the new effort is being developed.

 

Use The Plan to Guide Action and Adjustment

Business planning gives boards and staff a basis for deciding what to authorize and under what conditions. A practical plan identifies responsibilities, investment needs, and milestones. It also establishes when leaders will review results and what evidence would prompt them to expand, revise, or stop an effort.

Funders can support business planning before asking a nonprofit to undertake a major expansion. The analysis helps establish what the investment needs to cover, including the operating support required while the effort gets established. It also gives the nonprofit and funder a basis for discussing changes when results differ from projections.

The leaders responsible for implementation need to participate throughout the business planning process. As circumstances change, they will have to revisit assumptions and make choices the original plan could not anticipate. They need to understand which assumptions drove the decisions so they can adjust the plan when those assumptions no longer hold.

Business planning is equally relevant when an organization needs to become smaller. In the second article in this series, we will consider how leaders can use it to combine services, examine the savings from proposed cuts, and reimagine the delivery of core programs.