Tuesday, May 24, 2011

Revenue Generation vs Expense Reduction

My husband and I both love to help non-profits. He has spent a number of years on the marketing, event management side to generate more funds (revenue), whereas I've been on the logistics/purchasing side (expense reduction). However, in our experience, a large number of organizations spend a great deal of their efforts on lobbying government for more funds or 'exhausting their donors' by repeatedly going back to the same 'small' group. When a new capital campaign is required, few, if any, non-profits look for new alternative revenue streams nor (gasp) expense reduction. A Review of job postings on shows all the NPOs looking to fill positions for revenue generation, and not a single one for expense reduction (procurement).

I'm reminded of one of the basic principles of purchasing "the profit impact of purchasing" (from "Purchasing & Supply Management" Leenders, Fearon). A reduction in costs, go directly to the bottomline, vs an increase in revenue generally is paired with an increase in expenses...

or to look at it another way, as the Georgia Center for Non-Profits puts it "every $1 spent on pencils, Post-It® Notes, computer keyboards or printing by a nonprofit equals $11 that must be earned via fundraising."

So, how does an understaffed nonprofit reduce expenses? Operate like a corporation:
1) Stop buying retail - get yourself a corporate account with business discount for the 'basket of goods' small dollar items such as stationery, printing, etc.

2) Streamline your ordering process - it costs you money to send staff/volunteers to go to the local printer, buy pens, etc - consider the time/wage/gas cost before sending someone out to run errands.

3) Negotiate contracts for repetitive purchases - rather than having to obtain quotes for each and every time you need someone to do a mailout, print a brochure, etc - look to your historical volume and negotiate a contract for 1-3 years of service.

There are lots of ways that a nonprofit can benefit from operating like a business...far too many items to list all at once - watch for future posts :)

Do you have a tip for nonprofits to reduce expenses? Add it to the comments below:

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