Times are tough for non-profit organizations, and economic forecasts do not offer encouragement.
A dozen years ago, the federal government supported non-profits to the tune of $40 billion more than they do today. Partially as a result of this dwindling federal support, non-profits today face uncertain times.
Last month I was talking with the director of a potential client agency, which draws more than 80 percent of its revenue from government contracts. The director of this highly rated agency expressed serious concerns about that revenue dependency, a concern I echoed.
More and more, I see the precarious position in which non-profits find themselves when they are overly dependent on federal, state or local government revenues. Usually, these dollars arrive as contracts for services.
For example, a family-planning agency might receive federal and state dollars for contraceptive services offered to those who cannot afford to pay. In other cases funds might be received for capital needs such as building renovations or construction of a new museum wing. In these cases a strong economic case can be made for public funding, because the economic benefits of such support outweigh the initial investment.
A good case in point is Maryland's support for the National Aquarium, which will return many times the investment in tourist dollars.
The difficulty with over-reliance on government funding is that these sources are no longer predictable. Years ago, non-profit organizations could depend on government funds as the most solid in their revenue mix. Today, with the competition for shrinking funds increasing, there are no guarantees funding will be available at all, let alone at hoped-for levels.
Then, there are the myriad political hurdles that often must be overcome to secure government help. Finally, government funds increasingly arrive with too many strings attached.
For these reasons many of my colleagues are counseling their clients to continually decrease dependence on government funds, as part of a strategic plan for the '90s. "We're recommending to all our non-profit clients that they bring their government revenues down to near zero," said Ed Golin of Gauge Corp. in Wilmington, Del. Mr. Golin, a 40-year marketing veteran, uses reality therapy to help clients see the larger picture. "If President Bush is re-elected and another Republican administration follows, which certainly appears likely at this point, we may see subsidies to non-profits vanish altogether. Smart non-profits should plan now for that eventuality and create other revenue sources to stay ahead of that trend."
One way for non-profits to enhance revenues, Mr. Golin said, is to explore the establishment of profit centers. Many non-profits have capitalized on their experience in developing products or services, and have grown that expertise into profit centers. Museums, for example, have expanded in-house gift shops into catalogs that are attractive to a wider clientele than simply visitors.
One immediate problem faced by non-profits in establishing profit center is the general discomfort that non-profit staff have with a profit motive. Of course, when I suggest a profit center for a non-profit organization, I mean that in a limited sense. While a profit center can earn income in excess of expenses, the organization as a whole cannot.
An important issue for those non-profits considering such a move is that profit center operations must fit into larger strategic and marketing plans. Without well-conceived plans, moving toward a profit center operation can be disastrous in terms of finances and public image. Careful marketing studies must be conducted to determine client perceptions and objections, market size and segments, goals and objectives, and other parameters for success.
But, perhaps most important is the change in mind-set to which a non-profit must commit in incorporating the profit center model. For better or worse, most non-profits operate under a subsidy mentality that is anathema to a successful profit center. Such centers are operationally lean, market driven and innovative.
However, many non-profits have developed a body of market experience which, if given proper focus and direction, could be developed into a steady, predictable source of revenue for its other non-profit programs.
The writing is on the wall. Dependence on government funding is risky. Profit centers are one possibility non-profit organizations should explore in their quest for a more diversified funding base.
Les Picker, a consultant in the field of philanthropy, works with charitable organizations and for-profit companies.