When some of us see the calendar invite for “Revenue Goal Setting 2021” we feel a headache coming on. For some, setting revenue goals can be as exciting as ordering office supplies. Or chopping onions. Many of us are the people sending out those calendar invites. And even then, our own revenue goal meeting stresses us out. It’s connected to so many unknowns: the post-COVID economy, the wavering demand for our programs, the partnerships that may or may not pan out.
And then, for others of us, we haven’t even thought to hold a meeting at all. The revenue goal is simple: same as last year. Meeting adjourned.
At Seed, we believe the process by which you set revenue goals reflects the value you place on your program impact. Let’s look at how this plays out in the most common revenue goal-setting practices.
1. Hedging your bets
Method: Set the same revenue goal as last year
Many organizations this year are planning to maintain status quo next year. You might be thinking about COVID’s impact on your donors. You might be thinking about reducing expenses. You might have already cut expenses. You don’t want to set yourself up for failure. You’re playing it safe.
Problem:
Maintaining the same revenue goal year over year assumes that the organization’s impact is also not set to grow. It assumes that the organization's work is not essential, and thus should not expand. Nonprofits can thrive in an economic crisis if they have designed programming that meets an essential need. Donors respond to impact. Are you planning to achieve increasing breadth and depth of impact next year? Your revenue goals should reflect that.
2. Siloed Budgeting
Method: Add up your line items
During budgeting season, many organizations ask department heads to add up what they expect to spend next year. Everyone sits down in front of their budgets and makes some adjustments. Maybe they’ll include a new staff person here and there, another professional development allowance, a few new laptops. These get tallied up and sent to you. The sum total of each department budget becomes your 2021 revenue goal.
Problem:
This method assumes that the line items in a program budget are the equivalent of the costs needed to achieve missional goals. This is true ONLY if your program budget has taken into account all costs associated with achieving missional goals.
3. Top Down Only
Method: Add 20% growth year over year, or another set percentage
An easy planning tool is to set a pace for steady growth and simply plan for a 10-20% increase in your revenue goal each year. This is often done when the cost to achieve missional goals is not yet clear.
Problem:
A% year over year increase does not easily correlate with the same increase in programmatic impact.
Though setting revenue goals with these three methods are common and may work for business management purposes, they are not effective for activating generosity. Revenue goals are animating to a donor. Telling a donor that you need to raise $1,000,000 in three years can be an exciting conversation. But if you put a period at the end of that statement, you lose what makes the goal compelling.
Instead, share the impact you plan to achieve in three years and the price tag for that impact. What’s really compelling to a donor is to say, when we raise $1,000,000, this impact will occur.
So how do you come up with the price tag for your missional goals? How do you set mission-driven revenue goals?
As we said, most revenue goals are calculated by asking about what’s feasible, what did we do last year, or how much growth should we plan for. Mission-driven revenue goals ask a different series of questions in a different order.
What are your missional goals? Missional goals are the 3-5 year aspirational outcomes you will achieve when you are wildly successful with your mission statement. Check out Seed’s micro-course on Crafting Missional Goals.
What are the costs to achieve your missional goals? Calculating the cost to achieve your missional goals is not always the same as adding up the line items in your program budget. Unless your programs are already designed to achieve your missional goals. When your goals are new, it’s likely that you’re missing key costs because your programs are not yet dialed in to achieve those goals.
What is the administrative or indirect expenses associated with those missional goals?
That cost to achieve missional goals plus administrative expenses becomes the pre-fundraising revenue goal.
Add to that the cost to fundraise. A healthy investment in fundraising will vary between $0.20- $0.30 to raise $1. During times of investment, that cost can increase to $0.50.
Brief side note on admin expenses:
The social sector is shifting away from the belief that overhead expenses are a necessary evil. In fact, donors are beginning to value organizations that make strong investments in infrastructure. The pay-what-it-takes model for grantmaking is taking root across leading foundations. This model understands that indirect costs (the cost of doing business) are just as valuable as direct program costs and should be funded flexibly. The model does away with capping administrative costs at 15% or a similar fraction. In short, Seed considers your administrative expenses as intrinsically valuable.
In review, here’s the formula you can follow to set powerful mission-driven revenue goals year over year.
Case Study: Veteran Support Dog Nonprofit
Prior to setting missional goals, this organization aimed to serve as many veterans as possible by connecting them to a support dog. Their Executive Director set revenue goals by looking at what they raised last year and adding 15% each year. The program team was given a budget to work with each year.
After intensive program evaluation, the organization understood its key areas of impact and set three missional goals accordingly:
By 2024, our city’s veterans will experience a 90% employment rate due to the service of an animal.
By 2024, our city’s animal shelters will report a 20% decrease in euthanasia rates due to increased adoption by veterans.
By 2024 we will develop our nation’s first veteran service-dog training program that can be done at home, without the help of a trainer.
Calculating the cost to achieve these goals is different than adding up line items. The program team used to ask: What does it cost to serve X# of veterans? Now they will ask: What does it cost to change lives and create new systems? Here is what they will ask themselves in order to calculate each missional goal:
By 2024, our city’s veterans will experience a 90% employment rate due to the service of
an animal.
Are we serving the entire city already? If not, what will be required to expand? Do we need more outreach resources?
What is our current employment rate? In order to expand that, do we need to do business differently? What will it cost to expand? New employment specialists? A trainer to teach us how to think about employment differently? A new system for employment coaching? A leader for this specific program?
What systems and processes do we need to put into place to measure this and what will that cost?
By 2024, our city’s animal shelters will report a 20% decrease in euthanasia rates due to
increased adoption by veterans.
Are we already partnering with animal shelters in a way that will facilitate adoptions to our clients? If not, how should we and what will that cost?
What programmatic elements do we need to put into place to create a pipeline for pets to be adopted by veterans more frequently?
What systems and processes do we need to put into place to measure this and what will that cost?
By 2024 we will develop our nation’s first veteran service-dog training program that can
be done at home, without the help of a trainer.
How close are we to already having this model designed? What will it cost to bring it across the finish line?
Do we need a consultant or to hire someone who will specialize in this?
What infrastructure (technology) and follow up coaching do we need in order to make it possible for veterans to learn and conduct the training on their own?
What will it cost to disseminate the model?
The process of calculating the cost to achieve your missional goals will get easier over time as your programs become more dialed in. If you get stuck, check out IDEO.org’s design toolkit exercise for identifying the resources needed to achieve a particular goal.
The process we've outlined darkens the line between the dollars you’re raising and the impact you’re achieving with those dollars. You can now very easily, and with integrity, open the hood on your process with a donor. You can share the relationship between your missional objectives and the request you’re making. Incidentally, you will also have a more dialed-in program team that has gone through the exercise of thinking about costs to change lives and systems rather than costs to generate outputs.
Hopefully everyone looks forward to receiving your calendar invite when revenue-goal setting comes around. It will be much less of a chore and more of a design challenge.