Lesson 2 – Expected Revenue

Your expected revenue should be separated and allocated by each fundraising source. Use past data from your development team to better understand and predict how much you’ll raise from each source.

There are two methods of forecasting that you can use to predict your nonprofit’s future revenue. Each of these forecasting methods creates some flexibility in the budget so that your organization is more likely to be on target throughout the year. These two methods of forecasting are called the discount method and the cutoff method:

  • Discount method: Using this method, your team identifies the dollar amount that you expect to receive from each fundraising source. Then, you multiply that dollar amount by the fundraising probability percentage. For example, if you’re applying for a $10,000 grant and have a 75% probability of receiving the grant, you’d update the forecasted revenue to be $7,500.
  • Cutoff method: Using this method, your team identifies the total amount of predicted fundraising revenue, then multiplies this by your overall probability estimation. For example, if you have a successful history in fundraising and expect an 80% chance of success in your predicted $100,000 of estimated revenue, you’ll forecast $80,0000.

A nonprofit accountant will be able to help walk your team through the decision of which forecasting method is best for your budget. Plus, they’ll be able to work with you to determine the probability rates for your forecasting.

It can be dangerous to predict that you’ll have 100% success with all of your predicted revenue. It’s better to be cautious when planning ahead so that you’re more certain that you’ll have the funding you need to achieve your goals, no matter what external circumstances occur.