Revenue Diversification, Growth, and Stability

Nonprofit organizations (NPOs) are generally recommended to adopt a revenue diversification strategy, as a part of their revenue-seeking behavior, in order to mitigate against financial crises and shocks. However, what is the relationship between revenue diversification and NPOs’ financial growth and stability? Is revenue diversification always a net positive? To cast some light to these issues, this chapter discusses the definition of revenue diversification, how revenue diversification has been measured in the nonprofit field, some of the theoretical frameworks that have influenced its application and the respective effects on financial health, and some of its drivers, as identified in select studies. The chapter concludes that the relationship between revenue diversification and NPOs’ financial health is indeed a very complex one, one that is influenced by multi-dimensional factors. Therefore, whether diversification is a net positive or negative will vary based on each NPO’s mission and the services that flow from it, the strategic alignment of a revenue diversification strategy to that mission, and other factors that may be unique to each NPO and its environment.