Why profit shouldn’t be a dirty word for the not-for-profit sector
While commercial businesses are embracing a shift in social consciousness, moves toward investing more on marketing and greater commercialisation by NFPs are experiencing disastrous resistance. NFP boss and brand strategist John Carroll discusses what can be done.
Australians have long prided themselves on taking care of the less fortunate and those in need. But traditional thinking and old-fashioned attitudes could be dooming many charities and human service providers to extinction.
The world is fast changing for not-for-profits. It’s an interesting paradox that while businesses in the commercial sector is increasingly adopting initiatives to boost credibility as social and community-minded champions, the not-for-profit sector is under growing pressure to develop commercial acumen and marketing prowess.
These two very different organisational models are, out of necessity, drawing closer together on the social good versus profit maximisation spectrum.
This raises a crucial question: How will NFPs fund and fight a competitive battle for customers and donors when profit is still a dirty word in the sector?
While commercial businesses are embracing the shift to social consciousness, the need for a shift to greater commercialisation is meeting resistance among many NFPs, and certainly isn’t yet accepted in the public mind.
But gone are the days of being able to run a sustainable human service organisation on the back of a few community-minded volunteers and the secure revenue stream of block funding from the government.
Consumer control and choice in a competitive environment, as per the NDIS, is becoming the order of the day. If service providers don’t become marketing and media savvy they are unlikely to be able to win and keep customers. With the block funding rug pulled from under them, that will sound their death knell.
Gone, too, is the ability of a charity to survive on the donations of an unquestioning, kind-hearted public.
Charities are under intense scrutiny by potential donors who, facing an ever-growing stream of requests, naively believe their donations should go directly to the cause rather than to fund administration costs.
Charities must campaign hard to convince the public that they can do more good by investing in growth than by eking out a hand-to-mouth existence in a constant battle to minimise overheads.
Among the plethora of issues facing NFPs, especially donor-funded charities, is the fact that there is little public understanding of the principles that underpin sustainability in the charity sector.
The public is simply not comfortable giving to organisations with relatively high administration expenditures. They shudder at the thought of their donations going anywhere other than directly to the needy. But how can any organisation survive, let alone grow, in a competitive marketplace without allocating resources to client acquisition?
And we seem to be ignoring the point that smart investments by a strategically astute service provider or charity can create and deliver better outcomes to exponentially more people in need.
I’d go so far as to suggest that an NFP that doesn’t invest in properly planned marketing and strategic growth is likely to fail sooner or later – and it’s impossible for an organisation to do any good if it’s no longer in business.
Fortunately, attempts are being made to shift public thinking in this regard. Even the ACNC (the Australian Charities and Not-for-Profits Commission) has weighed in suggesting in a document released in August that it could be misleading for donors to judge the effectiveness and worthiness of a charity by its overheads.
But it’s not just the public’s thinking about the use of money that needs to change. NFPs must radically alter their internal thinking too, if they want to have any hope of surviving.
Some NFP managers still labour under the misapprehension that the term ‘not-for-profit’ means you’re prohibited from making a profit. Untrue. It simply means that any profits must be used to further the organisation’s purpose.
Of critical importance is that, to win and retain customers, attract donors, or gain support for community fundraising initiatives, NFPs must generate and allocate a percentage of profits to strategic marketing.
As a starting point, the focus should be on five key areas:
- Product differentiation
Trundling out the same old services, even with all the kindness and caring in the world, simply won’t cut it in this competitive marketplace. A number of smaller NFPs I’ve spoken to are still labouring under one or two dangerous misapprehensions:
- That their apparently high current standards of customer service will be their differentiating factor; or
- That they already dominate the market in their area, so differentiation is unnecessary.
I hate to break the bad news to them, but good service is seldom, if ever, a differentiating factor. It’s a vital element in gaining market share, but it’s an expected part of any offering these days.
Your products and services have to stand out and to do so, they must change in line with – or even ahead of – constantly changing market demand.
- Market segmentation
Without the luxury of an uncompetitive environment in which markets were allocated by funding agreements, learning to select, segment and fully understand key target markets will be a crucial step.
NFPs must consider both the client acquisition and retention perspective as well as the fundraising and donations perspective of the markets they choose to operate in. They need to understand all segments well so they can develop media choices and message content appropriately for each and tailor their spend proportionately. That takes ongoing market research and analysis.
- Advertising and promotion
A consistently strong brand image and effective calls to action across diverse market segments will be imperative to gain cut-through.
How will each market segment best be reached? For example, the Baby Boomers who are now starting to enter the aged care market will want to research and purchase services and products online, an area many human service providers have yet to tackle.
The development of digital marketing and e-commerce platforms will be key issues for any aged care provider wanting to get their attention and their dollars.
But will the same media platforms and messages get through to all market segments equally well? And attracting donors is obviously a very different proposition to attracting clients. But whatever the platform and message choices, the overall image of the organisation and what it offers must be consistently portrayed and delivered.
- Publicity and public relations
Image is everything, especially in the NFP world. For one thing, addressing the thorny issue of donations being used for administration and growth investment, perhaps even with – dare I say it – some risk attached, will need a delicate touch.
Publicity is arguably the best approach for convincing the public that you’re looking to invest in strategic growth that will benefit a lot more people in the long run. People are not as easily swayed by a paid ad than by an interesting or emotive story in the media.
- Invest in top class talent
All this raises another crucial issue: NFPs need to place a major emphasis on attracting the right talent.
This will undoubtedly mean an investment in competitive salaries, perhaps poaching from the commercial sector. But it’s an investment worth making; attracting and keeping good, strategic thinking and top-class marketing talent could literally mean the difference between success and failure.
Adapting to all this is a real challenge for NFPs. But if they – and the public as their supporters – are prepared to revolutionise their thinking, put aside their prejudices about profit-making and adopt some common commercial business strategies such as investing in marketing research and strategies, think how much more good could be done in developing better communities and reaching more people in need with better services.
We need to keep the gift of giving alive and thriving. Let the paradigm shift begin.
John Carroll is a leadership, brand and business strategist and CEO at Meals on Wheels Mid North Coast and joint CEO of Omnicare Alliance, where he is leading both organisations through a series of major changes in the human services environment.
Excellent piece John – you’ve nailed it on all key areas. Now we need the ongoing conversation for change to be informed by your wise perspective. Thank you for so clearly identifying the issues
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