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The Revenue Evaluation Matrix
The Revenue Evaluation Matrix is a tool for evaluating an organization’s financial situation and revenue mix. It can be used to evaluate the stability of your current revenue streams, gauge the potential of new revenue sources, and compare your organization's funding mix to that of similar organizations.
The Matrix was developed by Fieldstone Alliance and is based on the initial work of Jon Pratt, Executive Director of the Minnesota Council of Nonprofits. Pratt developed a process to help organizations evaluate their financial situation based on the “reliability and autonomy” of current funding sources. He reported on his work in the Winter, 2005 issue of Nonprofit Quarterly, a publication devoted to best practices in the nonprofit sector.
Fieldstone Alliance consultants expanded on Pratt’s concept by adding potential new revenue sources (not just the organization’s current ones) and additional evaluative criteria to the analysis.
How to Use the Tool
Typically, a team consisting of the organization’s board and staff leaders, perhaps assisted by a consultant, tailors the tool to their situation by working on three basic tasks:
- Determining the universe of current and potential revenue sources to be evaluated
- Determining the criteria to be used in evaluating each of the revenue sources
- Rating each of the revenue sources against each of the criteria
For most nonprofits, we recommend using a single universe relating to the whole organization. For others, especially those with a complex business structure, we recommend that a separate tool be developed for each major activity or enterprise. Organizations can also use the tool to evaluate a proposed new business line.
In setting up the matrix, it’s important to have a broad menu of revenue options; few should be eliminated at this point. The menu typically includes the organization’s current revenue streams, new ones it has already identified for possible development, revenue sources of comparable organizations, and other possibilities identified through research. (The sample matrix below shows 18 revenue sources divided into five general categories: contributed, earned, membership, public, and miscellaneous.)
Once the revenue universe is identified, each of the sources is then evaluated by a set of criteria determined by the organization such as:
- How strong is the revenue source? How likely is it to produce major revenues for you in the years ahead?
- How likely is it that the revenue source could help leverage other revenue sources?
- How consistent is the revenue source with your mission? Should a source be excluded because, no matter how strong or reliable it is, it conflicts with your basic mission and values?
- Will pursuit of this revenue source become such a major distraction for your leadership that other program areas may suffer?
- When the public becomes aware of the revenue sources (assume that they will), what effects will this have on your ability to raise revenues from other sources?
- Will the revenue source generate conflicts between you and your major funders? Might these conflicts discourage your current funders from continuing to fund you?
- Will the work required to generate the revenues be too large when compared to the net revenues likely to flow from the source? (This is particularly relevant for earned income sources.)
- Will use of this particular revenue source lead to enhanced regulatory burdens?
If some criteria are more important than others, the team should weight the options. You may choose to double-weight some factors. (See the sample matrix below. The formulas for the first four factors have been double-weighted.)
Each revenue source is then scored for each of the evaluative criteria as either +2, +1, 0, -1, or -2. The sum of these criteria (scores as adjusted for any weighting) is then averaged into a composite score for each revenue source. The revenue sources are then ranked according to their composite averages. (On the sample matrix the four types of contributed revenue are scored and ranked.)
The top-ranking sources are then analyzed in more detail. We want to emphasize that although we believe this scoring system is helpful, it should never be considered an absolute measure of the value of revenue sources. There needs to be some sort of “reality check” before any final commitments are made to pursue—or drop—any source. After applying the reality check, the selected revenue sources are not always the top-ranked ones (e.g. the final listing may be those ranked 1, 2, 5, 6, and 8).
Finally, the selected revenue sources are used to build your new revenue model. Because it will take time to fully engage new revenue sources, you may also want to develop a multi-year transition to the new revenue model.
Sample Revenue Matrix
Ranking scale:
2 = very positive; 1 = positive; 0 = neutral or "don't know"; -1 = negative; -2 = very negative
| Revenue Source |
Criteria |
Avg |
Rank |
||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|||
| Contributed | |||||||||
| Corporate contributions and sponsorships | 0 |
1 |
0 |
-1 |
0 |
-2 |
1 |
-0.1 |
4 |
| Foundation grants for specific programs | 2 |
0 |
1 |
1 |
2 |
0 |
0 |
1.4 |
1 |
| Foundation grants for general operations | 2 |
2 |
-2 |
-2 |
2 |
0 |
0 |
0.3 |
2 |
| Individual donations | 1 |
2 |
-1 |
-1 |
1 |
-1 |
-2 |
0.0 |
3 |
| Earned | |||||||||
| Consultant services fees | |||||||||
| Product sales | |||||||||
| Training/webinar fees | |||||||||
| Sale or licensing of intellectual property | |||||||||
| Membership | |||||||||
| Core member dues | |||||||||
| Affiliate member dues | |||||||||
| Sustaining member contributions | |||||||||
| Public | |||||||||
| Federal or state earmarks | |||||||||
| Government grants/contracts | |||||||||
| Dedicated tax source revenues | |||||||||
| Miscellaneous | |||||||||
| Debt (including PRIs) | |||||||||
| Leases/subleases | |||||||||
| Quasi-equity (tax credits, EQ2s, etc) | |||||||||
| Investments/interest | |||||||||
*Criteria (correspond to columns 1-7)
- Alignment with mission and values
- Discretion over how the money is spent (i.e. it is not restricted)
- Reliable—predictable and consistent
- Potential for future growth
- Politically acceptable to stakeholders
- Effort needed to generate revenues is not excessive
- Use of this source will not impair other needed revenue sources
For more information, please contact Tom Triplett at 651.556.4504 or email him at ttriplett@FieldstoneAlliance.org.
Copyright Fieldstone Alliance. For reprint permission, click here.
