Budgeting, Data, Analysis — What Does it All Mean?

At first glance, the budgeting process may seem quite puzzling. One moment, Q2 ends, and a few months later, CDP delivers a budget for the upcoming fiscal year to MSB stations. What happens in between? What research goes into creating the budget? What types of analyses? These questions contribute to the final balance of art and science in budgeting.

The upcoming Fiscal Year 2024 marks my sixth budget season with MSB  and the first one where we’re looking at 40 stations. Each station’s budget has about nine to ten categories, with the MSB managed areas totaling about six: Direct Mail (Renewal, Add Gift, Acquisition, Lapsed mailings), Digital and Texting. Where do we start our analysis to ensure we’re on the right track?

First, we look at prior year results against budgets or, if for a new station, at the Revenue Opportunity and Action Report (ROAR) data and results for stations of a similar size. The ROAR is a collection of data points, such as donor retention and revenue composition, on public media stations. This will inform our framework answering the broad question, “How did the station do?” Beyond this question though, there are several data points and trends that contribute to how a station may perform in the upcoming fiscal year.

The most consequential trend is centered on member counts and sustaining revenue. These two components come to define the scope of revenue that can be raised via campaigns and earned without solicitations. They are also the place where most interpretation and deductions occur. The strength of sustaining dollars is the cornerstone of bottom-line revenue. Here’s an example: If a station can expect $15,000 per month in sustaining Pledge dollars, that means that at least $180,000 is guaranteed for the year. Applying that concept to budgeting, the next part would be to determine how much One-Time and Installment revenue can be expected for the year. Once that’s ironed out, the next step would be to add each of those parts together for a full fiscal year budget. Direct Mail and Digital budgets are calculated similarly, with the big caveat that the Mail Marketing and Digital Marketing fiscal year campaigns play large roles in how those lines are constructed.

After we research the member count and sustaining dollar trends, we examine year-over-year performance. This is a crucial component of the background work in creating a budget. If member and sustainer counts have behaved in a certain way, how does revenue over a similar period of time behave? How does that revenue compare to a similar period in the past? What changed? What didn’t? These questions drive the Finance team’s efforts when creating budgets. For example, if a station performed slightly under budget in Add Gift Mail but was 8% higher than last year’s revenue through the same month, that points us in a few separate directions.  First, maybe the Add Gift budget was a little aggressive or revenue is delayed due to Post Office or vendors issues. Second, with performance higher than last year, the line is healthy and performing to or above expectations. In these cases, the numbers are true and represent real performance, but it’s up to Finance to figure out how to read and interpret them and also how to make an actionable future goal.

Interestingly, these analysis tools are not consistent across Direct Mail. For instance, a decrease in Lapsed Mail performance accompanied by an increase in Renewal Mail performance tells us that more members are renewing within their windows and not lapsing. Overall, all Direct Mail works together towards the same end. So, a big part of our final determination is whether DM as a whole makes sense and is reasonable. That’s achieved by totaling all Mail lines and comparing to prior actuals and prior budgets.

Overall, I’ve learned that budgeting is both a science and an art form. By that, I mean that research and analysis play enormous roles in determining our thought process for each budget and reforecast the Finance team works on and we also rely on experience to mold each line into the most realistic and reasonable representation of what is possible. Our major goal is always to be fair, accurate and transparent so the logic and background of what went into each line is a little less mysterious. I hope this blog post did the same for you.