5 Tips for Tracking and Managing Diverse Revenue Streams

Imagine that 70% of your organization’s annual revenue comes from a major annual fundraising event. This year, you’re expecting a larger turnout than ever before, causing your team to focus all its energy on the event and halt other smaller campaigns.

Two months before the event, a stock market crash causes many of your donors to reevaluate their finances. Some regretfully pull out of the event, citing the need to conserve funds due to the crisis. Your event ultimately raises money, but not as much as you expected or need to cover your expenses.

This scenario illustrates the necessity of revenue diversification. As YPTC’s nonprofit financial management guide explains, “The more revenue sources your organization leverages, the more financially stable your organization will be. If you only rely on a few revenue streams, you risk the chance that they’ll fall through, leaving your nonprofit without the funding it needs to pursue its mission.”

This guide will explore how to track and manage diverse revenue streams to keep your organization afloat.

1. Use the right technology.

The right tools will simplify revenue stream tracking, management, and reporting, allowing you to make well-informed financial decisions. Ensure the following systems are in your toolkit:

• Constituent relationship management system (CRM). Your CRM allows you to track incoming revenue like donations, grants, and event income all in one place. Look for a user-friendly platform that will scale up with your organization as it grows.

• Nonprofit accounting software. Accounting software allows you to take the revenue data from your CRM and organize it by source. Within this platform, you can create separate income categories for each revenue stream to track its performance. Seek a nonprofit-specific solution or plan that caters to your needs and integrates with your CRM for smooth data transfers.

• Automatic reporting tools. Automate reporting to get a quick overview of each individual revenue stream. That way, you can easily evaluate each source's financial viability and adjust your strategy as needed.

To choose the best tools for your organization, read reviews of your top options, consider recommendations from similar nonprofits, and request demos to explore each platform to see it in action.

2. Develop revenue stream goals.

Revenue stream-specific goals help you stay focused and make informed resource allocation and budgeting decisions. Use the SMART goal framework to develop ambitious yet realistic goals:

• Specific. Identify which revenue stream you want to build and how you intend to do so. For example, you may aim to increase funding from corporate philanthropy by developing more partnerships with local businesses and promoting corporate giving opportunities to your supporters.

• Measurable. Attach specific metrics to each goal so you can measure progress. For instance, your goal may be to “increase corporate philanthropy revenue by 10%.”

• Achievable. Your goal should be attainable based on your past performance and current conditions. Perhaps you increased corporate philanthropy revenue by 5% last year, and you already have more potential sponsorship deals lined up, so a 10% increase seems reasonable.

• Relevant. Each goal should support your broader mission. Since all revenue stream goals involve securing more funding and resources for your mission, they’ll inherently be relevant.

• Time-bound. Set a timeline for achieving your goal. That way, you’ll motivate your team to work towards it and have a definitive deadline for assessing your success.

A complete SMART revenue stream goal may be to “increase corporate philanthropy revenue by 10% before year-end by developing more partnerships with local businesses and promoting corporate giving opportunities.” 

You may also identify key performance indicators (KPIs) that will allow you to evaluate your strategy as a whole, such as total revenue by stream, revenue growth rate, and percentage of total income from each stream.

3. Monitor cash flow.

Different revenue streams may arrive at different times. For example, you may generate membership dues from each member once a year, receive funds from a specific grant quarterly, and collect individual donations regularly.

By monitoring cash flow, you ensure you have enough liquidity to cover your expenses at any given time. Stay on top of your cash flow by:

• Developing cash flow forecasts. Based on past performance, estimate how much cash will flow in and out of your organization from different sources. Use these forecasts to strategically allocate resources and bolster specific revenue streams as needed.

• Compiling a Statement of Cash Flows. Once you’ve forecasted cash flow, you must monitor it to see how much cash is actually flowing in and out of your organization. Nonprofits typically produce a formalized Statement of Cash Flows that reports cash flows from operating, investing, and financing activities.

• Building a financial reserve. There may be some times of the year when cash doesn’t flow in as heavily as others. To protect your organization from cash flow fluctuations, build a reserve fund that you can access if you need more cash during slow revenue periods.

Note any cash flow trends or seasonal variations your organization regularly experiences to better project cash flow and allocate resources in the future.

4. Ensure compliance with fund restrictions.

While some funds (like typical individual donations) are free for your organization to use however it wants, other revenue (like grant and endowment funds) must be used for specific purposes. Keeping track of fund restrictions allows you to ensure legal compliance and proper usage of each revenue stream. Adhere to fund restrictions by:

• Reviewing fund conditions. Look for specific restrictions in documents like grant agreements and donor contracts to ensure you remain compliant. Reach out to funders with any clarifying questions so you can be confident you’re using their funds responsibly.

• Tracking unrestricted and restricted funds separately. Implement a segregated accounting system to divide unrestricted and restricted funds from each other. That way, you can easily manage both types of funds and ensure you allocate them appropriately. You may also further break down restricted funds into temporarily and permanently restricted funds for more accurate management and reporting.

To build trust with stakeholders, consider informing those who contribute restricted funds about the systems you use to separate, track, and report on them so they can rest assured that you’ll use their contributions according to their conditions.

5. Analyze and report on each revenue stream.

By analyzing and reporting on each revenue stream’s performance, you can better understand your top revenue streams, reallocate resources as needed, and adjust your strategy. Dig deeper into revenue stream performance by:

• Scheduling regular financial reviews. Set up a meeting with your team, either monthly or quarterly, to review data about each revenue stream. Compile updated nonprofit financial statements each time so you can review accurate, timely information on each source’s performance and discuss what next steps to take.

• Using data visualizations. Creating charts and graphs makes it easier to digest and analyze financial data. For example, you may create a pie chart depicting the percentage of revenue stemming from each source over the past quarter.

• Performing budget-to-actual reporting. Your budget will predict how much you expect to earn from each revenue source, but it likely won’t match reality exactly. Budget-to-actual performing ensures you review your projections, identify any unexpected deviations, and adjust your expectations for the next budgeting cycle.

If your team is unfamiliar with compiling and analyzing financial data and doesn’t have a dedicated accounting staff, you may benefit from outsourcing these functions to a fractional CFO. These external experts can take these tasks off your plate and help you glean valuable insights about your revenue streams.

When it comes to tracking and managing diverse revenue streams, organization is key. With a solid strategy for handling different funding sources, you’ll help your organization branch out from its typical revenue sources, allowing it to become more sustainable and thrive for years to come.