ECONOMIC REALITIES

     

    The National Aeronautics and Space Administration (NASA) is planning a four-year mission in 2022 to travel to the asteroid Psyche 16.  While space missions are interesting by default, this one is gathering a great deal of attention.  According to the headlines, this space rock is believed to be composed of platinum, nickel and enough gold to make every person on Earth a billionaire many times over. The math is straightforward. Gold sells for a certain amount per ounce, the asteroid may contain a certain number of ounces and the Earth’s population is easily estimated. 

    Unfortunately, the stories generally ignore the fact that gold is valuable chiefly because it is scarce. If more gold were to be suddenly available, the laws of supply and demand would eventually drive the price of gold to mere pennies.  We would all have plenty of gold, but our individual wealth would not actually change. That's an economic reality.

    Economic realities should not be ignored in your organization either!

    The demand for programs and services offered by your organization is affected by the real and perceived competition and need in your area.  Are other non-profits offering the same program you are? Does your mission complement the functions of another non-profit? Accurately capturing the differentiators and communicating those to your donors and other community leaders is key to overcoming misperceptions and keeping support for your mission strong.

    Another economic reality is utility. Utility is the satisfaction one derives from consuming a product or service.  Economic theory suggests that utility decreases the more times a product or service is consumed.  Keep programs fresh and exciting to sustain participation. Add an interesting twist or new voice or venue to your events. By enhancing your programs and messages, both supporters and participants will gain new utility from being part of your mission.

    When services are so needed that demand begins to outstrip supply, your organization faces other realities. Economic efficiency is the measure of outputs gained from a specific set of inputs. Measuring and maximizing efficiency is an important first step as you seek to maximize supply. Larger classrooms can accommodate more people, but some programs lose effectiveness as the group gets larger. Other programs may have staff/participant ratios mandated by law or risk management policies may constrain participant numbers.  Be certain to maximize your efficiency before adding additional costs to your structure.

    Finally, don’t neglect pricing. Price elasticity reflects how much the consumption of a product changes as the price changes. Some non-profits and faith-based organizations offer their services at no charge, but others charge fees for programs. Assess what price your local market might bear for particular services.  You may find that revenue can be maximized by raising or lowering prices in response to elasticity. Subsidize things that should be subsidized while charging market rates for things that shouldn’t be. Address waiting lists in premium programs by pricing at a higher rate, while also increasing the amount of financial assistance available for those who don’t have the ability to pay full price.

    As you begin planning for the coming year, grab the golden opportunity to better serve your communities by understanding and embracing key economic realities!

    Posted by Brian Keel on Oct. 24, 2019
    Brian Keel

    Written by Brian Keel

    As Senior Consultant with Donor By Design Group, Brian brings nearly 25 years of leadership experience gained both in for-profit and non-profit organizations. This background gives him a keen understanding of the challenges and opportunities inherent in non-profit financial management.

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