community foundations december, 2007 prepared for: findings from cost-revenue analysis

Community FoundationsDecember, 2007

www.CFInsights.org

Prepared for:

Findings From Cost-Revenue Analysis

© 2007 Community Foundation Insights2

Purpose of This Document

• This set of slides is intended to provide community foundations with a template for presenting the findings of their cost-revenue analyses

• Foundations can use any or all of these slides as appropriate

• To use these slides, foundations must:

• Enter the results of their cost-revenue analysis in relevant slides (the foundation studied is sometimes called “Sample Foundation”)

• Update the peer foundation data on appropriate slides based on current benchmarking data available on the Community Foundation Insight’s database (www.cfinsights.org)

• The comparative data currently provided in these slides is from FSG’s analysis in 2003/4


I. Background

II. The Path Toward Improved Sustainability

III. Conclusions

Agenda


Fee structures inherited from bank trust departments don’t cover the services required today

• The traditional fee structure – an annual fee based on a percentage of assets – was never intended to support today’s expanded range of services

– Administering donor advised funds

– Advising and educating donors to become more knowledgeable about giving

– Managing committees who advise grantmaking

– Providing advice and continuing education to professional advisors

– Helping local nonprofits raise funds or develop their own endowments

– Convening funders to organize solutions to community problems

– Compiling studies of the local philanthropic and nonprofit sector

Increased resource costs have often been covered on a case-by-case basis through self-administered grants or the rapid growth of investment portfolios

• Neither is a sustainable or fiscally responsible strategy

A Key Initial Premise for This Work Was that the Current Fee and Revenue Structure for Community Foundations is Outdated

Competitors have lower costs and alternative sources of revenue—community foundations cannot continue to compete by offering more service

at the same price


CF Operating Models are Increasingly Stressed, As Staff and Boards Find Themselves Caught in A Push-Pull

Providing sufficient resources to:

– Grow community philanthropic endowment

– Create social change

Raising sufficient revenue to support

foundation activities

Community Foundations

A new approach is needed to effectively manage this push-pull


A New Discipline Is Required to Make Strategic Choices and Prioritize Use of Available Resources

1. Build internal transparency into costs and revenues associated with foundation products

2. Understand the operating context for each product

3. Make intentional strategic choices that further your mission


I. Background


A. Build Internal Transparency into Costs and Revenues

B. Understand the Operating Context for Each Product

C. Make Intentional Strategic Choices

III. Conclusions

Agenda


Community Foundations Can Build Transparency Into the Costs and Revenues Associated with their Products by Asking New Questions

A New Set of Questions

• How much cost is associated with each Foundation product?

• Which products make money and which do we subsidize?

• Are our subsidies consistent with our mission and strategic priorities?

• What determines cost for each of our products?


Activity Based Costing Can Enable Community Foundations to Better Understand the True Cost of Products and Services

Expense 1 Expense 3 Expense 4Expense 2

Activity 1 Activity 2 Activity 3

Product #1 Product #2

• Activity Based Costing (ABC) allows organizations to determine the actual cost associated with each product or service

• First activities are identified and defined, then cost data is gathered and traced to activities, finally costs are allocated to products or services based on their utilization of activities


100% of the Foundation’s Staff Time, Cost and Other Expenses Are Assigned to a Matrix of Activities and Products

Staff costs were assigned to activities and products based on reported time, weighted by individual salaries and including taxes and benefits

Cost MatrixDonor Advised

FundsSupporting

OrganizationsAgency

EndowmentsDesignated

FundsAcorn Funds

Competitive Grantmaking

Special Projects

Philanthropic Services

Wisconsin AIDS Fund

Women’s Fund

Acquiring or Establishing a New Fund

or Gift

$Y $Y $Y $Y $Y $Y $Y $Y $Y $Y

Maintaining Funds

$Y $Y $Y $Y $Y $Y $Y $Y $Y $Y

Making Grants

$Y $Y $Y $Y $Y $Y $Y $Y $Y $Y

Providing Non-Grant Services to

the Community

$Y $Y $Y $Y $Y $Y $Y $Y $Y $Y

Other StaffActivities

$Y $Y $Y $Y $Y $Y $Y $Y $Y $Y

10 Products

10

6 A

cti

vit

ies


Foundation Staff Identified Ten Distinct Products for Cost Analysis

Donor Advised FundsDonor Advised funds allow donors to be actively involved in and recommend grants from the funds they have established. Donor Advised funds require a $25,000 minimum balance. New Donor Advised fund level of $200,000 balance for enhanced services. Excluding all Acorn Funds and including Donor Advised Scholarships.

Supporting OrganizationsSupporting Organizations are separately incorporated affiliates that operate with more independence, but benefit from the Foundation's preferred tax status and administrative services. Published fee structures assume Supporting Organizations have a $1 million minimum balance. Specific Supporting Organizations include West Bend and Bucyrus-Erie Charities.

Agency EndowmentsInitiated by charitable agencies to serve as an endowment supporting the organization's work. An Agency Endowment fund requires a $25,000 minimum balance.

Designated Funds

Designated Funds support specific organizations chosen by the donor. Designated funds require a $10,000 minimum balance unless they benefit more than one agency. Designated funds that benefit two or more agencies require a $25,000 minimum balance. Excluding Acorn Funds.

Acorn FundsAcorn Funds allow donors to build a fund on a installment plan. Payments are made through regular contributions and their accrued income.

Competitive GrantmakingLimited to standard responsive grantmaking, Competitive Grantmaking includes Unrestricted and Field of Interest Funds. Requiring a minimum balance of $10K and $25K respectively, these funds finance grants designed to respond to broader community needs. Funding for these grants is determined by GMF.

Special ProjectsSpecial Projects include proactive grantmaking, funding collaboratives, leadership development, management assistance, etc. Examples include the Nonprofit Management Fund, youth initiative, poverty, Casey, environment, gay/lesbian and diversity issues.

Philanthropic ServicesPhilanthropic Services include Council on Foundations programs and national committees, Donors Forum programs, Greater Milwaukee Committee, association memberships costs, community service, convening other funders, etc. Also includes McBeath Administration, Report Card on Charitable Giving.

Wisconsin AIDS FUNDThe Wisconsin AIDS Fund raises and distributes more than $250,000 annually for AIDS education and prevention programs throughout the state. Launched in 1989 to prevent the spread of AIDS as a pass-through fund, all funds are put to use immediately in the fight against AIDS.

Women’s FundThe Women’s Fund guarantees money for programs that serve Milwaukee-area women and girls. Including little Women's Fund.

These products are provided as an

example – fill in the ones that your foundation chose

to analyze


Foundation Statistics

Source: Foundation data and analysis.

41%

26%

9%

24%

13%

21%

21%

32%

14%

10%

21%

25%

3%15%

2%

2%

1%

1%

1%1%

1%2%

12%

1%

1%

0%

20%

40%

60%

80%

100%

Market Value of Assets(12/31/02)

Value of Gifts (1998-2002)

Number of Gifts (1998-2002)

Wisconsin AIDS Fund

Special Projects

Acorn Funds

Women's Fund

Agency EndowmentFunds

SupportingOrganizations 1

Donor Advised Funds

Designated Funds

CompetitiveGrantmaking

$309M $133M 18,217

Competitive, Designated and Donor Advised Funds Account for 86.9% of the Market Value of Assets

Women’s Funds and Designated Funds (including Pass Through Fundraising gifts) account for the largest numbers of gifts received

This data is provided as an example – fill in data from your

analysis


$0

$500

$1,000

$1,500

Donor AdvisedFunds

CompetitiveGrantmaking

Women's Fund Wisconsin AIDSFund

Supporting Orgs PhilanthropicServices

DesignatedFunds

Special Projects AgencyEndow ments

Acorn Funds

Distribution of Total Cost by Product and Type of Cost ($000)

Providing Non-Grant Services to the Community

Note; Other Staff Activities includes IT, Human Resources, management and supervision, staff meetings, professional development, Board meetings, planning, Brand management, reception, office management, reporting, etc.

Acquiring a New

Fund/Gift

Main-taining Funds

Making Grants

Other Staff

Activities

Source: Foundation analysis of staff surveys and operating expenses.

Product% of Total Cost

36.4% 18.7% 11.0% 8.7% 7.9% 5.3% 4.6% 3.8% 2.1% 1.6%

% of Total Assets 21.4% 41.3% 0.7% 0.1% 9.5%1 N/A 24.3% 0.1% 2.4% 0.4%

(MV 12/31/02)

$1,428

$732

$429

$340$311

$207 $182$149

$81 $63

Donor Advised Funds and Competitive Grantmaking Account for 55% of the Foundation’s Total Operating Costs


analysis


Cost and Revenue by Product ($000s)

$1,492

$709$560

$5$161

$63 $48

$253$195

($732)

($182)

($1,428)($311)

($64)

($81)

($207)

($149)($429)

($340)

-$2,000

-$1,500

-$1,000

-$500

$0

$500

$1,000

$1,500

Com

petit

ive

Gra

ntm

akin

g

Des

igna

ted

Fun

ds

Don

or A

dvis

ed F

unds

Sup

port

ing

Org

aniz

atio

ns

Aco

rn F

unds

Age

ncy

End

owm

ent F

unds

Phi

lant

hrop

ic S

ervi

ces

Spe

cial

Pro

ject

s

Wom

en's

Fun

d

Wis

cons

in A

IDS

Fun

d

Cost ($000s)

Revenue ($000s)

Subsidy Generated/Required ($868)$761 ($177) ($144)($150) ($159)$528 ($149)($18)($59)

$1,289 $1,724


Competitive Grantmaking (FOI and Unrestricted) and Designated Funds Generate a Subsidy of $1.3M that Supports a Range of Other Products


analysis


The Subsidy Generated Should Be Directed Toward Funding the Highest Strategic Priorities for the Foundation

Subsidy Generated or Required by Product ($000s)

($149) ($144)($177)($159)($18)($150) ($59)($868)

$528

$761

-$1,250

-$1,000

-$750

-$500

-$250

$0

$250

$500

$750

$1,000

Com

petit

ive

Gra

ntm

akin

g

Des

igna

ted

Fun

ds

Don

or A

dvis

ed F

unds

Sup

port

ing

Org

aniz

atio

ns

Aco

rn F

unds

Age

ncy

End

owm

ent F

unds

Phi

lant

hrop

ic S

ervi

ces

Spe

cial

Pro

ject

s

Wom

en's

Fun

d

Wis

cons

in A

IDS

Fun

d

Continue Generating

Subsidy

Consider Adjusting Pricing

to Decrease Subsidy Required

Consider Funding through Grants

Explore Options as Appropriate


The foundation should also consider how pricing, activity, or policy changes for the fastest growing products can improve the Foundation’s sustainability


analysis


Pricing Adjustments, Cost Reductions, Or Increased Fund Sizes Would Be Required for Subsidized Products to Become Self-Sustaining

Breakeven AnalysisDonor Advised

FundsSupporting

OrganizationsAcorn Funds

Agency Endowments

Assets ($) $65.4 M $28.9 M $1.2M $7.3M

Assets per Fund ($) $258,6681 $3,616,545 $11,103 $101,460

Revenue per Fund ($) $2,214 $20,079 $43 $874

Cost per Fund ($) $5,645 $38,816 $593 $1,121

Published Fees (%)

• 0.8% for 1st $2M• 0.4% for $2-3M• 0.2% for all over

$3M


$3M

• No fees for funds under $25,000

• 0.5% for funds over $25,000


$3M

Breakeven Point (%) 2.18% 1.07% 5.34% 1.10%

Breakeven Size of Fund

(at published fees)$705,648 $8,526,511 $118,642 $140,068



analysis


Foundation Assets by Product Type

Note: Designated is noted separately from Org/Agency Endowments only when foundations viewed these two as distinct products. Otherwise, Designated funds are included with Org/ Agency Endowment funds in the same category.

Source: FSG Analysis

Comparative Analysis Includes a Range of Foundations, Each With a Different Product Mix

15%

65%

21%28%

41%49%

30%

55% 56%

7%

21%

21% 8%

27%

13%

36%

6%

10%

27% 3%

5%

6%

16%

17%

5%

32%

26%

16%18%

8%

3%

2%23%

24% 17%

10%

40%

1%

10%7%

2%

3%

2%

3%20%

5%11%

1%

11% 11%3% 1%

2%

0%

20%

40%

60%

80%

100%

Ari

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Other

Scholarships

SupportingOrganization

Designated

Organization/AgencyEndowments

Donor Advised

CommunityResponsive(Unrestricted &FOI)

This comparative data should be updated – for

current data on peer foundations, see the

Community Foundation Insights database


0%

1%

2%

3%

4%

5%A

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Cle

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Col

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Car

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as

Sam

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Fo

und

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Kal

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Phi

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San

Fra

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CommunityResponsive(Unrestricted &FOI)Donor Advised


Designated

SupportingOrganizations

Scholarships

Comparing the Foundation’s Breakeven Points to Benchmarks Provides A Starting Point for Understanding Sustainability


Breakeven Points (Product Operating Costs as a % of Product Assets)

Traditional Fee Ceiling

at 1.0%

and up





Number of products, and asset concentration in each product

– Products that represent a relatively large percentage of a Foundation’s assets tend to have lower costs and be managed more efficiently

Degree of customization allowed or encouraged by the Foundation

– Unique processes in response to one-time donor requests add significant cost to all funds and divert staff attention from activities that serve a broader base of donors

Average fund size in each product category

– Exceptionally large funds tend to subsidize many small funds – All foundations have products that cover their total costs only when the average fund size is at least $100K in assets

Level of transactions associated with funds in each product area

– Higher levels of gift and grant activity can lead to additional cost, unless processes are streamlined and standardized

Degree of enhanced services provided by the foundation, e.g., managing committee processes, creating special RFPs for individual donors or offering unique investment management options

– Enhanced services, while expensive, are an opportunity to recover additional revenue for service, though few foundations generate revenue from these services in a systematic way

Pricing, and discounts from published pricing

– Higher effective fees, particularly for large funds, at or above 1% of assets are often necessary to recoup enough revenue to cover costs

Foundations’ total costs range from 0.7% to 1.6% of assets, excepting those foundations with assets over $1B

Breakeven points for individual products often exceed 2.0% of assets, some up to 5.0% of assets

A Number of Interrelated Factors Influence the Sustainability of the Products Provided by Community Foundations


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0% 10% 20% 30% 40% 50% 60%

Community Responsive

Donor Advised

Agency Endowment

Designated

Supporting Orgs

Scholarships

Product Assets as % of Foundations’ Total Assets


% of Assets versus Breakeven Point

Products with a Larger Concentration of a Foundation’s Assets Generally Have a Lower Breakeven Point –

Though Breakeven Points are Not Explained by Scale Alone

Bre

akev

en P

oin

t (

Pro

du

ct

Op

era

tin

g C

os

ts a

s %

of

Pro

du

ct

As

se

ts)

and up

Sample CF

Sample CFSample

CF

Sample CF

Sample CF





43%52%

56%

79%

35%

72%

55%64%

57%

36%36%

18%

54%

25%

28%

23%

11% 13%8%

3%11%

3% 6% 9%

19%

40%

46%

0%

20%

40%

60%

80%

100%

Ari

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>$500K

$50K-$500K

<$50K

For All Foundations, Large Funds Subsidize Some Portion of Smaller Funds


Distribution of DAF by Fund Size





Higher Levels of Grant Transactions Lead to Higher Costs Unless Processes are Streamlined and Efficient


And Up

0

2

4

6

8

10

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CommunityResponsive(Unrestricted &FOI)Donor Advised


Designated

SupportingOrganizations

Scholarships

Number of Grants per Fund





Foundation Strategy Should Guide Prioritization and Adjustment of Products

Priorities Product Emphasis Product Pricing AdjustmentsOpportunities to Reduce or

Redirect Costs

Donor Advised Funds

Supporting Organizations

Agency Endowments

Designated Funds

Acorn Funds

Competitive Grantmaking

Special Projects

Philanthropic Services

Wisconsin AIDS FUND

Women’s Fund

These products are provided for

example only. Fill in the products your foundation

used in its analysis


I. Background





III. Conclusions

Agenda


To Achieve Sustainability, Foundations Must Understand Each Product’s Operating Context

Community Foundation Products

Fee Based ProductsCommunity Leadership

Products

Each product type requires a different set of questions

Examples include:

• Donor Advised Funds, Designated Funds, Supporting Organizations, Unrestricted/FOI Funds, Scholarship Funds, and Agency Endowments

Examples include:

• Convening, community organizing, conducting community needs assessments, special initiatives

Operating Context:• Foundation Mission and Values• Cost To Serve• Customers• Competition

Operating Context:• Foundation Mission and Values• Cost To Serve• Community Need• Alternatives in the Community


Four Perspectives Are Required In Order to Evaluate Changes to the Foundation’s Prices, Processes and Policies for Fee-Based Products

Fee-Based Product(Price, Processes, Policies)Competition Customer Value

Co

st t

o S

erve

• What are our donors’ alternatives?

• How are our competitors positioned in the market?

• What does market research tell us about our donors’ priorities and interest in different product offerings?

• Are our fees aligned with the cost structures of our fee based products?

Valu

es

• What are our mission-driven priorities?


These Four Perspectives Should Be Considered for Each of the Foundation’s Fee Based Products

Fee-Based Product(Price, Processes, Policies)

Competition Customer Value

Co

st

to S

erv

e

Va

lue

s

• Donor Advised Funds

• Committee Advised Funds

• Scholarships

• Designated Funds

• Unrestricted/ Field of Interest Funds

• Supporting Foundations

• Funds Engaged in Fundraising

While the questions are the same, the answers are different for each product


$5,645

$2,214

$0

$2,000

$4,000

$6,000

Per Fund DAF Cost Per Fund DAF Revenue

The Economics of Donor Advised Funds Vary By Foundation

Donor Advised Funds – Case Study

Sample Foundation Donor Advised FundsAverage $259K in Assets Per FundEffective Fees @ 0.86% of Assets

-

($4,000)

($3,000)

($2,000)

($1,000)

$0

Sample CF 3 of 9 CFsCovering Costs of

DAF

6 of 9 CFs Subsidizing Costs

of DAF

($3,413)


$89

($1751)

Average DAF Contribution (Subsidy)

$257K in Assets per Fund

Effective Fees @ 0.80% of Assets

$197K in Assets per Fund

Effective Fees @ 0.98% of Assets

$3,413 Subsidy Per

Fund


• Financial institutions see donor advised funds as commercial opportunities

• In only 10 years, Fidelity’s Charitable Gift Fund has grown to be the nation’s second largest public charity and the largest public grantmaker

Donors Are Faced with an Increasing Array of Donor Advised Fund Options

Donor Advised

Fund Options

• Organizations that have traditionally promoted philanthropy through giving campaigns have expanded to offer donor advised funds

Source: Giving USA 1999, United Way of America, Fidelity Charitable Gift Fund

• Nonprofits with strong donor relationships are extending their own giving options to offer donor-advised fund products

• Enhanced service funds offer donor advised funds paired with targeted grantmaking opportunities, flexible program services and an active community of engaged donors

Commercial Gift Funds

Large Nonprofit Organizations

Philanthropic Advisors

CommunityFoundations

• Community Foundations nationally are experiencing rapid growth in donor advised funds, despite increasing competition

Traditional Giving Programs



2.18%

1.31%

0.35% 0.29%0%

1%

2%

3%

4%

5%

6%

Sample CF Average CF inSample Set

Fidelity CharitableGift Fund

VanguardCharitable

EndowmentProgram

Source: FSG Analysis, Fidelity Charitable Gift Fund Annual Report 2006, Vanguard Charitable Endowment Program Annual Report June 2007

Donor Advised FundsEffective Fee Required to Breakeven

Operating Costs as a % of Assets

Commercial Gift Funds With Standardized Service Have Standard Breakeven Rates, While Community Foundations and High Service Funds

Such As Tides Have Not Achieved the Same Efficiencies

Commercial Gift FundsPerceived

Fee Ceiling at 1.0%


The comparative data should be updated – for




0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

$0.1 $0.5 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0

Kalamazoo

Seattle

New Hampshire

San Francisco

Greater NewHavenGreater Atlanta

Cincinnati

Central Indiana

Arizona

Philadelphia

Carolinas

Rhode Island

Milwaukee

Pittsburgh

Cleveland

SE Michigan

Okalahoma City

New Orleans

Columbus

Community Foundations’ DAF Effective Fees Vary Widely, With All but One Lower than the Sample Set Breakeven Fee of 1.31%

Peer Foundations DAF PricingEffective Fee Rate


$M

Average CF in Sample Set Breakeven Fee at 1.31%





0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

$0.1 $0.5 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0$11.0

Fidelity

Schwab

NationalPhilanthropicTrust

Tides

Vanguard

The Pricing and Positioning of Commercial Gift Funds and Other Competitors Have an Impact on Foundations’ Choices

Competitive Alternatives’ DAF PricingEffective Fee Rate


Perceived Fee Ceiling at 1.0%

Many community foundations perceive a fee ceiling at 1.0% and have lower DAF fees for larger funds – approximating the fees charged by competitors

$M

Source: Organization web sites



Annual Funds• Donors establish fund and recommend

grants to nonprofit organizations over a short period of time, generally within one year

• Administrative fee: 1%• No Minimum Contribution

Long-Term Funds• Donors establish a long-term

philanthropic investment by creating an ongoing stream of income for charitable activities that fit their values and interests

• May also include a Declining Fund with a balance to spend down over a period of years

• Annual management fee:− 1.00% Under $500,000− 0.75% Next $500,000− 0.50% Next $4,000,000− 0.25% Over $5,000,000

• Minimum Contribution: $100,000

Donor Advised Funds

The Tides Foundation Meets the Needs of Its DAF Customers with Differentiated Levels of Service – and Differentiated Pricing to Cover

Higher Costs of Higher ServiceAdditional Grantmaking FeesCore Services: $25 per domestic grant

• Payment of all grants • Quarterly statements of Fund activity • Due diligence by Tides staff to ensure that grants are

made to IRS-approved nonprofit organizations whose work fits within the mission of Tides Foundation.

Program Supported Services: 5% on grants made

• Consult with clients about interest areas • Conduct outreach to potential grantees • Acknowledge applicants' proposals/materials and

notify grant applicants and grantees • Forward applicants' proposals/materials to clients • Meet with clients to make grants decisions • Monitor grantee reports

Program-Advised Services: 12% on grants made

• Provide customized program design • Facilitate more in-depth analysis of issues and

strategies for effective grantmaking • Conduct site visits of potential grantee organizations• Evaluate and present grant applicants in the form of

a docket, which includes an analysis of the issue areas

• Meet with clients, at least annually, to make grant decisions, discuss relevant issues, etc.

Special portfolio of services: hourly or per service charge

• Tides can provide a customized portfolio of program-supported and/or program-advised services listed above.


No Efficiencies with Scale

Efficiencies with Scale

Pricing Decisions

Single Product Many Products

Standardized Transactional Service

Customized or Enhanced Services



Lowest Fees Highest Fees

Small Average Fund Sizes with Manual Processing

Large Average Fund Sizes or Automated Processing











Low Cost High Cost

Many Community Foundations Match Higher Cost Options with Lower Pricing



The Resources and Values of Each Community Foundation Suggest Different Alternatives for Donor Advised Funds


Scenario Assets Values and Priorities Changes to Pricing, Processes, Priorities

Foundation A

• Smaller % of assets, but area of growth

• Significant subsidy available from other product areas

• DAF are viewed as a strategic means of engaging with a wider range of donors in the community

• Increase or maintain subsidy as DAF assets increase – expect small funds

• Price to compete with alternatives• Streamline processes• Change policies to require local grantmaking from

DAF• Create opportunities for local engagement of donor

advisors – events, site visits, local giving opportunities

Sample Foundation

• Moderate but growing % of assets

• DAF are a lower priority means of achieving an impact in the community

• Prefer to invest available subsidy in acquiring unrestricted assets and leading community initiatives

• Eliminate subsidy over time• Raise price to level at which costs are covered • Streamline processes and decrease customization• Change policies to increase fund size • Decrease acquisition emphasis – refocus

development resources on establishing planned gifts for donor advisors

Foundation C• Large and rapidly

growing % of assets

• DAF are core to strategy and potential for achieving impact in the community

• Minimize subsidy over time• Reprioritize activities to focus on opportunities to

engage donor advisors• Differentiate CF offering, emphasizing the unique

value of local knowledge and engagement• Create multiple tiers of service, each with different

price levels, charging more for enhanced service levels


A Look At Operating Context for Each of the Foundation’s Products Illustrates the Value of this Approach

Fee-Based Product (Price, Processes, Policies)

Competition Customer Value

Co

st

to S

erv

e

Va

lue

s

• Donor Advised Funds

• Committee Advised Funds

• Scholarships

• Designated Funds

• Unrestricted/ Field of Interest Funds

• Supporting Foundations

• Funds Engaged in Fundraising

The questions for each product are the same, but the answers are different


Community Leadership Products have a Different Operating Context than Fee Based Products

Community Foundation Products

Fee Based ProductsCommunity Leadership

Products

Cost to serve should be evaluated relative to potential for unique social impact

Examples include:

• Donor Advised Funds, Designated Funds, Supporting Organizations, Unrestricted/FOI Funds, Scholarship Funds, and Agency Endowments

Examples include:

• Convening, community organizing, conducting community needs assessments, special initiatives

Operating Context:• Mission and Values• Cost To Serve• Customers• Competition

Operating Context:• Mission and Values• Cost To Serve• Community Need• Alternatives in the Community


Four Perspectives Are Required In Order to Evaluate Options for the Foundation’s Community Leadership Products

Community Leadership Product (Revenue Sources, Processes, Policies)

Alternatives in the Community

Community Need

Co

st t

o S

erve

• Is the CF best suited to meet this community need?

• Are there others in the community who could play a role (non-profits, government, foundations, etc)?

• What are the needs in the community?

• What are the opportunities for impact?

• What are the costs associated with the development and ongoing management of these activities?

• Is the investment reasonable given the impact?

Valu

es

• What are our mission-driven priorities?


0%

25%

50%

75%

100%

Carolinas Kalamazoo Milwaukee

Investments in Community Leadership Products Can Serve to Differentiate the CF and Enhance Community Impact

Distribution of Total Cost by Type of Cost - 2003

Community Leadership Activities:

• Better Together Kalamazoo initiative to connect citizens with City’s resources

• Leadership Initiatives, which include service on national and local committees and boards

• Special Projects, which include the Nonprofit Management Fund, youth initiative, poverty, Casey, environment, gay/lesbian and diversity issues.

Instead of viewing community leadership products as merely an extension of program activities, CFs can seek revenue to sustain these investments

Acquiring New

Fund/Gift

Acquiring New

Fund/Gift

Acquiring New

Fund/Gift

Maintaining Funds

Maintaining Funds

Maintaining Funds

Making GrantsMaking Grants Making Grants

Providing Non-Grant Services to the Community

Providing Non-Grant Services to the CommunityProviding Non-Grant

Services to the Community

Other Staff Activities Other Staff Activities Other Staff Activities

• Initiatives such as Women's Impact Fund, Impact Fund, CBI, Voices and Choices, POST, Donors Forum Fund

• Meetings with civic leaders, community foundation boards


I. Background





III. Conclusions

Agenda


Informed by a New Set of Facts, the Foundation Can Engage in Productive Board/Staff Dialogue and Make Intentional Strategic Choices

• Are our operations aligned with our mission and strategy?

• To improve sustainability going forward, what changes should we make in our:

• Processes?

• Policies?

• Pricing?

• Revenue sources?

• How do we prioritize investment of resources?

– Which fee based products will we subsidize, if any?

– How should we trade off subsidizing certain fee-based products versus community leadership activities?

• How do we develop and evaluate new product/service introductions?

Questions


A New Framework Can Be Used by Community Foundations To Improve Sustainability

What is our core

mission/ values?

What mix of products serves our mission and

values best?– Within fee based products– Fee based vs. community

leadership products?

How do we position priority products for growth?

What operational changes do we make by product:–Price–Policy–Processes


Articulating the Foundation’s Values Is the First Step to Creating a Path to Sustainability

By articulating its values, a community foundation gives itselfa framework for prioritizing among its product areas

Which Mission-Driven Goals Are the Highest Priorities?

Leverages CF Expertise to Direct Funds

Builds Community Endowment

Addresses Local Needs

Promotes Philanthropy by Expanding Donor Base

Generates Revenue to Cover Costs

High Priority

Moderate

Low

Minimal

Our CF Values


A Key Question for the Foundation Is How To Best Differentiate Itself Through Investments in Fee Based or Community Leadership Products

Fee Based Products Community Leadership Products

How can we differentiate ourselves and create an

impact in the community?

Is the best way for the foundation to build relationships with donors underwriting fund costs, or undertaking high-profile community initiatives?

• Should we build new relationships with donors by underwriting the costs of fee based products?

• How important are specific fee-based products to accomplishing the CF’s mission and differentiating it from others?

• Should we invest in community leadership products to attract new donors by increasing our profile and vitality in the community?

• How important are specific community leadership products to accomplishing the CF’s mission and differentiating it from others?


To Achieve Their Potential, Community Foundations Must Improve Their Sustainability

• To reach their potential, community foundations must act now:

– Improve the differentiation of their operating model

– Make deliberate, fact-based, strategic choices on the donors and products to prioritize and grow

– Identify new revenue sources to support high priority activities

• Two critical ingredients are required for community foundations to improve their sustainability

– Achievement of a higher level of understanding of product costs and market/community dynamics

– Willingness and ability by staff and board to engage with the new fact set and adapt historical values and priorities to new realities

community foundations december, 2007 prepared for: findings from cost-revenue analysis

Documents