Revenue Diversification: The Honest Version of the Advice

Revenue Diversification: The Honest Version of the Advice The research is more mixed than the standard advice usually admits Revenue diversification is treated in most governance advice as an uncontested good, more funding sources always means more resilience. The actual academic research is more mixed than that advice usually admits, and a board making a real decision about its own revenue concentration deserves the honest version, not the simplified one.

01 The Established Concern, Stated Precisely 02 The Honest Complication Most Advice Leaves Out 03 What This Means For How A Board Should Actually Think About It Use this resource as a board pre-read, discussion guide or governance review prompt.

The Established Concern, Stated Precisely Financial Governance & Sustainability · 22 September 2026 The core concept here is a genuine, long-studied one in nonprofit finance research: the revenue concentration index, closely related to the Hirschman-Herfindahl Index used more broadly in economics, which measures how reliant an organisation's income is on a small number of sources. The foundational research finding, replicated across multiple studies, is that heavier reliance on one or two revenue sources is generally associated with greater financial vulnerability, since the loss of any single major source becomes proportionally more damaging the larger a share of total revenue it represents.

The Honest Complication Most Advice Leaves Out A more recent study, applying formal portfolio risk modelling to nonprofit revenue structures and published in a peer-reviewed nonprofit management journal, found something more complicated. Across the full sample studied, higher revenue concentration was associated with lower measured portfolio risk overall. Looking more closely, the relationship depended heavily on the type of revenue involved: for organisations relying primarily on donations, or with no consistent primary funding source at all, higher concentration was riskier, matching the conventional wisdom. For organisations relying on commercial income or government grants specifically, higher concentration was associated with lower measured risk. Separate research on government funding specifically has also identified a crowding-out effect, where a nonprofit that draws more heavily from one major government funder tends to receive meaningfully less funding from other government sources, a pattern that weakens as an organisation grows larger and more capable of managing multiple funding relationships simultaneously. Revenue diversification is not a universal rule that every association should apply uniformly. It is a risk management decision that depends on what type of revenue concentration you have, and pretending otherwise does a board no favours.

What This Means For How A Board Should Actually Think About It The useful question is not simply what percentage of revenue comes from your largest source. It is what type of revenue that source represents, and what would actually happen if it disappeared. A membership association drawing a large share of revenue from membership fees themselves is concentrated in a meaningfully different, and generally more stable, way than an association drawing the same share from a single, discretionary government grant subject to policy change at the next budget cycle. Recent sector commentary on the Australian charity landscape has noted that a meaningful share of the sector carries real exposure to shifts in government funding priorities specifically, precisely the more volatile category the research above identifies as higher risk when concentrated. •

Assess concentration by revenue type, not just by total percentage, since the research is specific that donation and inconsistent revenue concentration carries different risk than commercial or government grant concentration.

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Treat diversification efforts as most valuable specifically where your largest revenue source is discretionary, policy-dependent, or donation-based, rather than applying diversification as a blanket strategy regardless of what the concentrated source is.

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For organisations dependent on a single major government funder, actively pursue relationships with additional government funders and programs, understanding the documented crowding-out effect means this typically requires deliberate relationship-building rather than assuming diversification happens naturally as the organisation grows.

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Connect this analysis directly to the risk appetite statement and reserves policy discussed earlier in this quarter, since revenue concentration is precisely the kind of risk category a risk appetite statement should address explicitly rather than leave implicit.

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Revisit the concentration analysis as part of the strategic planning cycle, since the right level of acceptable concentration for a young, grantdependent association is not the same as for a mature, membership-funded one, and the mix itself will shift as the organisation grows.

The right amount of revenue diversification is not zero concentration, and it is not maximum diversification for its own sake either. It is a deliberate judgment about which of your revenue sources are volatile enough to warrant the real cost and effort diversification requires, made with the actual evidence in view rather than a slogan repeated without examining it. This is one of the practical governance topics built into our Board Director course — alongside the papers, tools and frameworks that turn the principle into your board's actual practice. Explore the course → — Annie Gibbins General education — not legal, financial, tax, clinical or governance advice. Confirm specifics at the relevant primary source or with your own qualified adviser. Nexus Leadership is operated by Lipstick Consulting Pty Ltd · ABN 15 619 120 482.

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BOARDROOM

ACTION WORKSHEET Turn the article into evidence, a decision and an accountable next step.

Revenue Diversification: The Honest Version of the Advice Editable boardroom action record 1. What is the issue or decision? State the governance question in one clear sentence.

2. What evidence do we already have? Record the facts, source documents and stakeholder evidence available now.

3. What evidence is still needed? Identify the legal, regulatory, financial, member or operational information still required.

4. What is the agreed next action? Capture the owner, timeframe and how the matter will return to the board.

ACTION REVIEW OWNER DATE Name / DD / role MM / YYYY

BOARD DECISIO N Decision / resolutio n