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The larger a Not for Profit organisation, the greater reliance there is on non-dues income. Non-dues revenue in itself is neither good nor bad. It is the way in which this source of income fits with the mission of the organisation that is either a good fit, and therefore assists the organisation fulfill its mission, or it is a bad fit and may therefore detract from the organisation fulfilling its mission.

Two traps with Non-dues Revenue

Often Not for Profit organisations fall into one of two traps in devising and implementing non-dues revenue sources. Firstly, they may not utilise non-dues revenue sources because they do not have the culture of running the organisation like a business, or do not view their organisation as one that has potential for providing services to members over and above what they have traditionally provided. This is true particularly of sporting and welfare organisations.

Secondly, Not for Profit organisations often have a habit of growing non-dues revenue sources without consideration of their impact on the mission and objectives of the organisation. This leads to problems of providing services that are not needed by members, but which generate significant income and therefore the organisation becomes reliant, or that "pet projects" that do supply a source of non-dues revenue detract from the organisations ability to resource those services that truly represent the needs of members. This is more true of the membership organisations.

Alternative Sources of Revenue and the Strategic Plan

Categorising non-dues revenue sources based on their impact on the Strategic Plan is an essential management tool that allows an organisation to monitor the source and use of non-dues revenue. The Strategic Plan is essential as a management tool as it identifies those activities that the organisation MUST get right in the next few years.

It is all too easy to get sidetracked with pet projects (either from the Executive Director or from Board members), or projects that generate funds, but do not add to the mission of the organisation. This will, without doubt, divert resources and focus away from what the constituency have identified as those things that the organisation must get right in the next few years to achieve the mission of the organisation.

There are three categories of non-dues revenue sources that I have found useful:

Category 1: Alternative Sources of revenue from activities totally unrelated to the Strategic Plan.
Category 2: Alternative Sources of revenue from activities marginally related to the Strategic Plan.
Category 3: Alternative Sources of revenue from activities directly related to the Strategic Plan.

Category 1: Alternative Sources of revenue from activities totally unrelated to Strategic Plan

Recommendations

a. These should have a formal Board Policy that recognises the activity is not covered by the Strategic Plan, and is thus outside of the formal planning strategies the organisation has adopted

b. The explanation given to the Board and/or to the constituency needs to be more detailed, giving reasons for the activity, and the impact on the organisations resources (cash and personnel). There is an increased potential for constituency dissatisfaction with the employment of the revenue derived from these activities, or from the resources necessary to manage the activity. There is an increased chance that this revenue will be expected to subsidise membership dues or other services.

c. These types of non-dues revenue sources should be regarded as activities that contribute to the financial profit of the organisation, NOT to the operating costs.

Examples:

1. Group Benefit Promotions
(revenue from 3rd parties for sponsoring a program that benefits members)
a. Group Insurance programs
b. Credit Card promotions
c. Telephone Discount schemes
d. Cause related marketing

2. Fundraising events
a. Benefit Dinners
b. Sales of Unrelated Products
c. Silent Auctions

3. Investment income
a. Retained earnings
b. Endowments

Example of Retained Earnings Policy

1. Introduction
The AIBF has built up its accumulated reserves over the years from the following activities:
a. Build up of membership subscriptions without concomitant overhead expenses increasing
b. Marginal profits from 1996 to 1999
c. Significant profits from the Diploma course and particularly the Congress since 1998

2. Benchmarks
A survey of associations of similar size to the AIBF shows that the average accumulated funds to Gross income ratio is 45.7%. This is an acceptable benchmark.

3. Uses of Accumulated Funds
Accumulated Funds have two major functions. Firstly, to act as a buffer for years in which operating results are in deficit. Secondly, as a funding source for activities identified under the corporate plan. Accumulated Funds should not be used to subsidise existing membership services

Category 2: Alternative Sources of revenue from activities marginally related to Strategic Plan.

Recommendations

a. Establish a policy (not necessarily at Board level) that covers 1. Justification for introduction 2. Objectives 3. Responsibility structure 4. Operational parameters (eg. Types of activity, range of acceptable activities) 5. Evaluation of Policy

b. Typically these activities allow the not-for-profit to achieve its objectives in an indirect way, eg advertising allowing the journal to be of a higher quality, or bigger.

These activities should be reported against the key service that the strategic plan has identified as necessary. Eg advertising reported against journal, sponsorship against Congress, products against marketing or P.R. plan. This will focus the Boards attention on the reason why these sources exist, and their contribution, not just financial, to the functions of the organisation. It will also highlight if these sources start to become irrelevant to the mission of the organisation.

Examples

1. Advertising
2. Products promoting the association (mugs, decals, umbrellas, folders etc)
3. Sponsorship

Example of Sponsorship Policy Paper

1. Introduction

Sponsorship is the commercial support (financial and/or non-financial) given by an organisation in return for either endorsement of a product/service or access to a select target market from the recipient.

The AIBF is an association whose members are significant users of financial services, and as such are prime markets for potential sponsors such as information providers, consultants and banks.

The AIBF has received significant sponsorship in the past. Sponsorship worth $80,000 was achieved in 2000, $125,000 in 2001, and $230,000 in 2002. The Institute is increasingly utilising sponsorship, and it is now necessary to formalise a policy on sponsorship.

2. Objectives

The objectives of sponsorship are :

• That sponsorship provides a benefit to members by way of enabling a higher quality of service to AIBF members.
• That sponsorship provides an appropriate vehicle for the sponsor to gain AIBF endorsement or access to AIBF members.
• That sponsorship does not compromise the integrity and image of the AIBF
• That the AIBF as an organisation gains either commercial benefit or an increased profile through the sponsorship arrangements.

3. Responsibility Structure

There are two levels of responsibility:

1. All National based activities are a National Council responsibility. National Council may delegate authority to enter into sponsorship arrangements to the Executive Director, within the bounds of the objectives and guidelines contained in this document.
2. All State based activities are the State Chapter Executive Committee responsibility, after consultation with the Executive Director. This consultation is to avoid any potential conflicts. The State Chapter Executive Committee may delegate authority to enter into sponsorship arrangements to a Sub-Committee, within the bounds of the objectives and guidelines contained in this document.

The major activity centres affected are:

• The National Congress. This should be a National responsibility.
• The AIBF journal: This should be a National responsibility
• Video/audio tapes and books: This should be a National responsibility
• National based education programmes (Congress, National Courses): This should be a National responsibility
• State based Education programmes: This should be a State responsibility.
• Other State based activities: This should be a State responsibility.

A Central Sponsorship Register should be maintained at National Office, that records the Sponsors contact details, the activity sponsored, the benefits to the sponsor and to the AIBF, and whether accepted or declined, with notation of reasons for decision if appropriate.

The written offer or acceptance of sponsorship must come from National Office, albeit confirming the negotiations conducted by the Chapter. This must be a formal Agreement.

4. Operational Parameters for Sponsorship Arrangements

Types of Sponsorship Arrangements

There are 6 types of sponsorship arrangements that can be undertaken.

1. A Sole Sponsor with naming rights to the event (Eg Telerate/AIBF FX Competition)

2. Either a Gold, Silver or Bronze Sponsor, depending on the level of dollar sponsorship and resulting grades of sponsorship

3. A Special Event Sponsor responsible for an activity and its resultant costs

4. An In-Kind sponsor who provides material/services rather than dollar amounts

5. An Underwriting Sponsor who guarantees that any losses on an activity will be funded by that sponsor

6. An Endorsement Sponsor that lend their name and perhaps some resources to an activity

Range of Acceptable Benefits offered to sponsor

1. Mailing of sponsors literature to members

2. Sponsors Logo/captions on literature

3. Acknowledgement of sponsor in publications/mailouts

4. Editorial in journal

5. Sponsors Advertisements in registrants papers

6. Exhibition space at event

7. Registrants listing

8. Registrations/social events

9. Face-to-face access to members

10. Reserved tables where they have right to nominate seating arrangements

11. Right to hold a hospitality suite.

12. Sponsors representative to address delegates at event.

5. Acceptable Sponsors
Sponsors are deemed acceptable if they fulfill the conditions of acceptable reputation and integrity, creditworthiness, and acceptance of the AIBF's Code of Practice.

6. Evaluation of Policy

The sponsorship policy should come under formal review on an annual basis by the National Council

Category 3: Alternative Sources of revenue from activities directly related to Strategic Plan.

This category is the greatest opportunity for the organisation to meet constituency needs in innovative ways.

The Strategic Plan identifies strategies and Action Plans that provide the blueprint for the organisations activities. For each Action Plan, there may be up to three commercial activities that can be undertaken by the organisation that not only enhance the results of the action plan, but generate revenue as well. This is an opportunity for the Chief Executive to provide some innovative, value-added service to the not-for-profit organisation. This category is the breeding ground for services that will be found to be indispensable, and which set the tone and culture of the organisation.

Example

Strategy c: Develop a Technical infrastructure for the AIBF

Action Plan c.3
Target: Develop the Research/Library resources necessary for effective functioning of information collection and dissemination

Project: Finalise policy and procedures for library and research papers within existing financial constraints

Resources: National Office, Publications Portfolio

(Non-dues revenue opportunity: catalogue and bind articles from journal into a series of readings on specific topics, sell to market; commission books on hot topics for sale; sell the catalogue to the market)

Summary

1. Category 1: Alternative Sources of revenue from activities totally unrelated to Strategic Plan
Recommendations

a. Formal Board Policy needed
b. Explanation given to Board and/or to constituency needs to be more detailed,
c. These types of non-dues revenue sources should be regarded as activities that contribute to the financial profit of the organisation, NOT to the operating costs.

2. Category 2: Alternative Sources of revenue from activities marginally related to Strategic Plan.
Recommendations

a. Establish operational policy

b.Report against the key service that the Strategic plan has identified as necessary. Eg advertising reported against journal, sponsorship against Congress, products against marketing or P.R. plan.

3. Category 3: Alternative Sources of revenue from activities directly related to Strategic Plan.
a. Develop your Strategic plan

b. Measure existing services, including non-dues revenue sources, against the Strategic plan

c. Use the Strategic plan to stimulate new ideas for services that can generate resources.

Last Word

For every activity your organisation undertakes currently, there are at least two commercial spinoffs that you have not yet identified.

Further articles:

• Prosperity Consciousness: Creating Wealth and Resources for your Not for Profit Organisation (.pdf)