Mastering Next Year’s Budget With Revenue Projections and Donor Attrition Analysis

One of the most important lessons a nonprofit practitioner can learn in their career is that budgets are moral documents. What does that mean? It means that where your organization puts its time, energy, and resources is a direct expression of the things it values.

This is especially true when it comes to budget projections that will help inform the strategy of your organization in the coming year. The more accurate and insightful that executive directors and finance teams can be when predicting revenue, cost, and ROI, the better equipped their organization will be to sustain and grow its mission.

You want to take your nonprofit to the next level? The first step is creating a budget. 

In this comprehensive and interactive guide, we’ll guide you through:

• Understanding Revenue Projections
• Calculating the Impact of Donor Churn
• Introducing the Mission Impact Profitability Matrix
• Integrating Revenue Projections and Donor Attrition in Budgeting
• Leveraging Technology for Better Financial Planning
• Making Donor Retention a Key Priority

Throughout this guide, we’ll also give some practical guidance based on what type of role you have at your nonprofit that outlines practical application of the insights you’ll gain from this resource. 

Understanding Revenue Projections

When a nonprofit is putting together a budget for the coming year, an important step is to perform a revenue projections analysis that can inform the expected amount of income used for operational expenses and deepen mission impact. 

First use this year’s revenue to establish a baseline for all your expected revenue, including but not limited to individual giving, major gifts, events income, expected pledges, and grants. 

Next, use your knowledge of current expenses like wages, rent, utilities, program costs, etc. to project what your costs will be for the coming year. At this stage of the process, just getting a baseline understanding of expected costs will suffice. 

Lastly, factor in your donor retention rate so you can anticipate the number of new donors you’ll need to acquire in order to meet or exceed this year’s revenue total. Forgetting to factor in expected donor churn is an all-too-common budgeting mistake. 

Based on these two numbers, what sort of revenue growth would your nonprofit need to see in order to a) deliver on your existing mission, b) expand your mission, and c) reinvest in your organization through raises, better equipment and technology, education opportunities, etc.?

That growth rate will be a key element in determining your operational priorities: “If we can raise X percent more revenue, we can deepen our mission in W, Y, and Z following ways. Let’s do it!”

Projected Revenue Formula

Using all the factors we discussed above, here’s the basic formula that you can use to create revenue projection for your nonprofit 

• Formula: Projected Revenue = Current Revenue + (Current Revenue × Growth Rate) – (Current Revenue × (1 – Retention Rate))
• Components:
  • Current Revenue: The total revenue from the previous year.
  • Growth Rate: The expected percentage increase in revenue.
  • Retention Rate: The percentage of donors who gave last year and this year.

Calculating the Impact of Donor Churn

We mentioned this in the previous section, but it really is such a common mistake that we think it bears some repeating: Always, always, always, include expected donor churn in your revenue projection!

According to the most recent Fundraising Effectiveness Project data on donor retention, the typical nonprofit will lose around 5 out of 10 donors on a yearly basis and 8 out of 10 new donors. Historically, it costs $1.25 to raise $1 from a new donor, while existing donors cost much, much less.

By anticipating some level of donor churn, your nonprofit can anticipate fundraising shortfalls and pivot accordingly.

Now, let’s review how to incorporate the expected loss of revenue from that attrition rate into your planning process:

Revenue Lost to Donor Churn Formula

This formula lets you take the number of donors you expect to lose and translate into an amount of expected revenue lost. 

• Formula: Revenue Lost to Churn = Current Revenue × (1 – Retention Rate)
• Components:
  • Current Revenue: The total revenue from the previous year.
  • Retention Rate: The percentage of donors who continue to donate.

Additional Revenue Needed Formula

With this formula, you can take your revenue lost to churn and incorporate your expected growth rate to determine how much new revenue you’ll need to bring in to compensate for that loss. 

• Formula: Additional Revenue Needed = Revenue Lost to Churn + Projected Revenue Increase
• Components:
  • Revenue Lost to Churn: Calculated from the above formula.
  • Projected Revenue Increase: The increase in revenue calculated from the growth rate, which is Current Revenue × Growth Rate.

By identifying the additional revenue needed, you can begin to prioritize which programs you’re currently considering that will be in the best position to drive profitability and impact.

Introducing the Mission Impact Profitability Matrix

For organizations with multiple revenue streams with varying costs, this analysis also provides a great opportunity to assess which programs to invest more deeply into, where to hone operational efficiencies, and what programs to close down entirely. 

In the book Nonprofit Sustainability: Making Strategic Decisions For Financial Viability, authors Jeanne Bell and Steve Zimmerman offer a handy framework for approaching different revenue generation programs. Using this as a guide when assessing your revenue projections will help prioritize your investments. 

The Mission Impact Profitability Matrix is a way to cross-categorize your nonprofit’s various programs according to their effectiveness and their cost—all with an eye towards deciding those critical next steps.

As you can see in the graphic above, the Matrix uses profitability and impact as its two axes, creating 4 distinct quadrants. Those quadrants are:

• Low Mission Impact/Low Profitability = Close Down
• High Mission Impact/Low Profitability = Keep Costs Low
• Low Mission Impact/High Profitability = Increase Impact
• High Mission Impact/High Profitability = Invest and Grow

The Mission Impact Profitability Matrix is a great tool for making your annual budget stretch as far as possible by maximizing your nonprofit’s strengths, while minimizing and/or shoring up its weaknesses.

It is unrealistic for a nonprofit to expect 100% of their donors to give year over year, which is why reviewing which programs have the highest return on investment is a great initial step to take in putting your vision into action. 

Integrating Revenue Projections and Donor Attrition in Budgeting

Now that you’ve gotten comfortable with understanding the basics of revenue projections and donor attrition, let’s combine these two formulas into a comprehensive analysis for your nonprofit. That way, you’ll be fully prepared to overcome these expected lost donor commitments through tried and true engagement tactics. 

Using the Mission Impact Probability Matrix as a guide, apply these formulas against the individual programs you have currently or expect to roll out in the future and use them to decide next steps. 

 Let’s review a few examples that you may be familiar with:

You are a… (Role)	You receive revenue from…	Revenue Program Recommendation	Notes
Development Officer	Recurring Giving Program	INVEST AND GROW	Focus on personalizing donor communications to enhance retention and long-term commitment.
Development Officer	Annual Gala Event	CLOSE DOWN	Reallocate resources to digital fundraising campaigns that offer broader reach and lower overhead.
Finance Director	Major Donor Contributions	KEEP COSTS LOW	Streamline major donor engagement processes while maintaining high-quality interactions.
Finance Director	Government Grants	INCREASE IMPACT	Optimize grant management to ensure alignment with mission and efficient use of funds.
Marketing Manager	Online Fundraising Campaigns	INVEST AND GROW	Enhance online presence and engagement strategies to expand donor base and increase online contributions.
Marketing Manager	Charity Auctions	CLOSE DOWN	Shift focus to more sustainable and cost-effective fundraising methods such as digital campaigns.
Program Director	Membership Fees	KEEP COSTS LOW	Maintain current membership fee structure while improving member benefits to boost retention.
Program Director	Corporate Sponsorships	INCREASE IMPACT	Develop targeted pitches to align corporate sponsor interests with nonprofit goals for mutual benefit.

These are but a sample of the decisions that nonprofits need to make when entering into a budgetary process. There are tons of different ways to address these problems—but, ultimately, it’s important to prioritize what will best grow your community of generosity. 

Leveraging Technology for Better Financial Planning

A typical nonprofit balances three to five different data sources to manage revenue operations like this. It’s no wonder that many nonprofits currently need help projecting accurate revenues!

To address this holistically, let’s bolster your income strategy with technology. Let’s revisit the above scenarios and see what this looks like when using a platform like Neon CRM.

You are a… (Role)	You receive revenue from…	Revenue Program Recommendation	Notes using Neon CRM
Development Officer	Recurring Giving Program	INVEST AND GROW	Enhance recurring giving with Neon CRM’s personalized communication and donor management tools​​​​.
Development Officer	Annual Gala Event	CLOSE DOWN	Transition resources to more cost-effective online campaigns using Neon CRM’s digital fundraising tools​​.
Finance Director	Major Gift Contributions	KEEP COSTS LOW	Optimize major gift engagement efficiently with Neon CRM’s donor tracking and relationship management​​.
Finance Director	Government Grants	INCREASE IMPACT	Use Neon CRM’s reporting and analytics for effective management of government grants​​.
Marketing Manager	Online Fundraising Campaigns	INVEST AND GROW	Boost online fundraising using Neon CRM’s digital tools for campaigns and virtual events​​.
Marketing Manager	Charity Auctions	INCREASE IMPACT	Shift to the ClickBid integration for a mobile only auction, reallocating funds from live auctioneers to digital engagement advertising.
Program Director	Membership Fees	KEEP COSTS LOW	Maintain and grow membership efficiently with Neon CRM’s enhanced management features​​.
Program Director	Corporate Sponsorships	INCREASE IMPACT	Manage corporate sponsorships with targeted strategies using Neon CRM​’s Company management features and our Double the Donation integration

By leveraging the right technology, your nonprofit won’t have to choose between prioritizing profitability versus mission impact. You’ll be able to do both.  

How? Through a transformational shift in the people you are engaging with. Especially when it’s combined with deep financial insights from accounting platforms like Quickbooks, a nonprofit’s budgeting process can become an exercise in creativity and experimentation that is centered on what you value most. 

Making Donor Retention a Key Priority

Revisiting our statement that budgets are moral documents, the practical reality is that any nonprofit looking for operational maturity in its programs will need to fold donor retention and attrition analysis into its planning. 

This is critical for several reasons, but an important one is that this approach ensures that fundraising and finance are coordinated in ways that highlight their particular strengths. 

Fundraising Team

• Focused on building strong relationships: The strategy emphasizes developing deeper connections with donors and supporters through personalized communication and engagement tactics. This approach fosters long-term loyalty and a sustainable donor base.
• Emphasis on impactful storytelling: By leveraging digital tools for storytelling and brand awareness, the fundraising team prioritizes creating compelling narratives that resonate with the audience, enhancing the overall appeal and effectiveness of fundraising efforts.

Finance Team

• Prioritizing financial efficiency and ROI: The finance team’s strategy is centered around maximizing financial resources, ensuring that every dollar spent contributes directly to the organization’s mission and goals without ignoring overhead costs.
• Leveraging data for strategic decisions: This approach involves using data analytics to guide decision-making processes, from budget allocations to program evaluations, ensuring that choices are grounded in concrete insights and lead to measurable outcomes.

By aligning these two different perspectives on success under one formula, your nonprofit can chart an exciting yet data-driven path that will be defendable to any board of directors or executives who need to understand the recommendations that you’ll be making around your budget. 

Want to learn more about building a donor retention strategy? The article below has everything you need to know—and then some.