An intuitive look at income

I’ve been thinking about income a lot recently, in part because I’ve been talking about it with clients and partly because I’ve been thinking about it as a business owner.  Now, last time we talked about the types of donors you’ll likely experience in ministry, but that article focused on the types of “customers” you have.  This time I want to look at income, using an intuitive approach.

See, income really breaks down into two components: how many people give, and how much they give.  Let’s go to a humble lemonade stand for a moment.  If my niece and nephews put a table up at the nearby train station and sell 40 glasses of lemonade for \$1 each, they’ll have \$40 revenue.  The quantity of 40 is the how many, the \$1 is the how much, and 40 cups times \$1 equals \$40.  Yes, it’s basic, yes it’s intuitive, but it’s an approach we can build on.

Now let’s look at something close to home: a fundraiser.  Let’s say that the youth group is having a fundraising dinner in the parish hall.  We can seat 100 (how many) and we’re planning on selling tickets for \$50 (how much).  We can budget revenue at 100 seats times \$50 or \$5,000.  But what if we averaged 90 tickets for the last three years?  Then let’s adjust the seats down : 90 x \$50 = \$4,500.

But what about contributions where any amount could be given?  This gets closer to what I was talking about last time, and that’s reviewing contributors and breaking them down into demographics.  In fact, I even did that in my example, which I’ll repeat here:

1 investory @ \$100,000 / year
5 investors @ \$25,000 / year = \$125,000
100 sustainers averaging \$7,500 / year = \$750,000
100 tippers averaging \$100 / year = 10,000
Total = \$985,000

The final point I want to make about income is this: when revenue is faltering, it either means that there is a breakdown on the how many side and / or on the how much side, that not as many people are giving or that they are giving less.  When this happens, we want to ask why it is happening.  Is attendance the same, but fewer people are giving?  If so, why are gifts being withheld?  Is attendance down?  If so, why?  Are the same number of people giving but the amounts down?  Why?  Is the economy taking a hit, or are they finding different financial priorities?

So this is a basic look at income: how many and how much.  And by the way, behind the closed doors of accounting we refer to how many as “volume” and how much as “rate.”  If you ever listen to a dyed-in-the-wool accountant talking about these concepts you’ll hear them discuss revenue as volume time rate.  I really don’t care.  What I do care about is that we understand how the math works and can make good decisions based on our understanding about what is happening with the number of givers and their gifts.