Earned income has been the single biggest driver of the growth in charity income for most of the last twenty years, and it currently represents over 50% of all charity revenue. It also comes in many forms: from “on-mission” contracts for services and paid support; to “off-mission” activities like retail, property and sponsorship deals; and just about everything in between.
And I get the sense that sometimes, the sheer breadth of that potential landscape is part of the challenge for charities wanting to grow more of it. But it’s not the only challenge.
In simple terms, a charity can only grow earned income in two ways: improve the contribution of what you already have or develop new business in areas you don’t currently operate. And while those two things might sound very different, the challenges for charities in doing either are surprisingly similar.
Improving the contribution of existing business is pretty routine stuff in the commercial sector, but for charities, it brings with it a couple of unique challenges. One is the ability to rapidly take advantage of opportunities, to scale up and expand what works, to invest heavily behind early success. Historically, the main reason was that charities found it much harder than businesses to raise the required capital, but nowadays there are many more options for any charity with a good business case to access investment. The barriers today are less likely to be financial than they are to be internal: barriers of risk and pace; of attitude and aptitude.
The other challenge is the ability to surgically address performance issues: to make and follow through on decisions about people and business lines dispassionately, objectively and robustly. In a values-led, passion-driven charity culture, this can be a tough act, especially for on-mission work that directly impacts beneficiaries.
For many charities, the marketisation of government services had a huge impact on their levels of earned income. A rising tide, as the phrase goes, floats all boats. But austerity and competition, particularly in recent years, have shone a spotlight on the capability and culture gaps we need to fill, if we’re to stay afloat as the tides of funding ebb away.
The recent story that more than half of social care providers are handing contracts back to local authorities, may be a sign that excessive price competition is about to backfire on commissioners. But it’s also a sign that, in the past at least, those same providers were ill-equipped, improperly trained and poorly positioned, when it came to influencing buyers, securing favourable terms and crafting good contracts. Again, the gaps in relationship management, sales and negotiation skills, seem to appear.
That’s not entirely unexpected – they aren’t skills one would naturally associate with charities – but “earned-income” charities are becoming increasingly exposed by their absence.
The good news is that once these gaps are recognised, they can be addressed, and the better news is that the benefits of addressing them go well beyond the core business. Many of those same skills and behaviours are also pre-requisite for developing new income: sales, relationship development, entrepreneurialism, risk-management; they’re all essential elements in the process of building a new enterprise idea that’s ready to scale.
A recognition of these commercial gaps is increasingly emerging in conversations I’m having. As one CEO said to me only last week, “We’re not short of ideas for earning income, the problem is picking the right ones and making them happen.” Experience tells me that the process we’re about to undertake will almost certainly prove him right, and that developing the confidence, the commercial capability and the entrepreneurial culture that underpins it, will be critical in helping them cross that Rubicon over the coming months.
Neither of these routes are especially easy, but both can yield significant rewards and help is out there in many different forms. So, if you’re trying to develop new streams of earned income, or to improve the contribution of the streams you already have, please let me know.