Guest Post – Forecasting Annual Church Revenues: Using Trends and Cycles to Help Predict Future Revenues – part 3

Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.

He has about seven years experience as an auditor working on the issues discussed on this blog. This is the third in a series.

By Jeff Beaumont, CPA

Part 3 – Calculations

Introduction is here. Description of forecasting model is here.

You still with me?

Good.

Trying to figure out how to forecast revenue for nonprofits is quite a sticky issue. After all, it is much simpler to try to forecast revenue for a company that sells some product, say, bread, soda, or gasoline. There is a reasonable understanding that people need (or want) those items.

For a financial model, there is the term “financial driver” which means anything that affects the rise and fall of revenues, expenses, etc. The four categories for revenue drivers are:

1. Customers – how many customers do you have?
2. Frequency – how often do they make a purchase?
3. Transaction size – how big is that purchase?
4. Price – what is the price?

Thus, revenue = customers * frequency * transaction size * price.

So, with those four categories, you could more easily—though still not a breeze!—determine revenue projections if you have estimates for how often customers will buy a number of items at a particular cost.

There is still a lot of research to be done. After all, if you were selling loaves of bread, you would need to research how many customers you would anticipate, how often they would buy bread, would they buy one, two, or three loaves of bread, and, finally, at what price?

With this in mind, which of those categories fully transition to a non-profit? Though I believe an argument could be made for only two or three, I believe it is best to consider all four with some being more or less important.

Customers: this comes back to tracking giving units or attendance for a church.

Frequency: although this seems straightforward as services are typically weekly, however, many donors do not make consistent, weekly donations. Some will give quarterly, some monthly, bi-weekly, and some weekly–often relating to when they get paid. However, for simplicity’s sake, calculating frequency as once a week might be the best solution.

Transaction size: because this is so interrelated with price for a non-profit (no one “buys” more donations…they simply increase the “price” of the donation).

However, it is good to consider special fundraisers or goals, such as a building fund, debt-repayment campaign, or anything else that would reduce general contribution giving (Note: I accept arguments against this point as some people do give their normal contribution and then additional above for whatever special project. However, in my opinion, there is much evidence of people giving toward the special project and, intentionally or not, reduce their general contribution).

Thus, it is good to keep in mind any campaigns or large events/activities that are currently or will be occurring when preparing these calculations.

Price: as some donors give more and some less, how does one determine the “price”, especially as donors may give more in one month and less in another? In this case, I average it out on a weekly basis. In my opinion, it is simpler that way.

So if I can look at what donors have given on a weekly basis for the past five years and, for instance, it is typically between $35 and $45 per attendee, I can choose $35 to be conservative, $40 for average, or $45 if I truly believe that donors will become even more generous than before.

So that’s the basis for the calculations. With this, you can make estimates for your church.

But hold on, there’s still one more post to bring all the discussion together.