Not-for-profit organizations benefitted from a stronger economy and higher per capita disposable income in recent years. But each sector also faces unique challenges for future growth ranging from the effect of social media on civic organizations to the impact the low employment rate is having on higher education.
Using research compiled from the industry tool IBISWorld, we have put together a mid-2019 view of the economic outlook for not-for-profits, including:
- Civic and social organizations
- Historic sites
- Religious organizations
- College and universities
Organizations within these subsectors may want to review the trends noted by IBISWorld and determine whether revisions to future plans or strategies may be needed.
Civic, Social & Youth Organizations
Between 2013 and 2018, civic, social, and youth organizations experienced an average growth rate of 2.1%. The growth has been supported by an increase in per capita disposable income, strong corporate giving, and steady federal funding. Civic and social organizations are also benefitting from the increasing number of Baby Boomers who are reaching retirement age.
Future Challenges for Civic, Social & Youth Organizations
The rise of social media and other online platforms may be lessening the demand for civic, social, and youth organizations. As individuals connect to like-minded people virtually, physical membership pools for organizations dwindle. IBISWorld predicts that growth will decline to an average rate of 0.08% between 2018 and 2023.
Civic, social, and youth organizations will need to engage creatively with current and future members. Technology plays a key role in reaching core audiences. The very channels that are bringing people together virtually also provide these organizations with a platform to demonstrate their relevance.
As growth declines, other factors will become more critical to future success as well, including:
- Maintaining a good reputation
- Maximizing economies of scale, with some niche organizations combining with larger social, civic, or youth organizations
- Partnering with corporate sponsors
Historic Sites in the U.S.
National parks and historic sites rely heavily on government grants, but in the past five years, less federal support has gone toward the preservation of historic sites. The American Recovery and Reinstatement Act had provided historic sites and national parks with benefits that had offset some of their operating costs, but those funds are evaporating. While tourism has helped cover some gaps in funding, sites have implemented cost-cutting measures, including increasing their use of a volunteer workforce. Visitors and cost containment strategies have helped the sector maintain a modest 1.4% growth rate between 2014 and 2019.
Future Challenges for Historic Sites
IBISWorld predicts the 1.4% growth rate will continue over the next five years. There is no guarantee that government funding for historic sites will stabilize, or if new tax incentives will pick up where previous federal initiatives have left off. Historic sites will need to continue to explore opportunities to increase revenue through other means, such as raising admission prices, replacing “pay what you can” policies with flat fee admission, and expanding guided tours, gift shops, concession sales, and other ancillary service offerings.
Museums experienced significant growth over the past five years as per capita disposable income grew and tourism increased. Between 2014 and 2019, the industry averaged a 3.4% increase in revenue. Similar to historic sites, museums have had to work around decreases to state, local, and federal support. Many have revised admission fees (notably the Metropolitan Museum of Art dropped its “pay what you can policy” for out-of-state residents in March 2018) and implemented cost-cutting strategies.
Future Challenges for Museums
The growth rate for museums is expected to decline to an average of 1.8% over the next five years as government support for the arts continues to decrease. Increased tourist activity and private donations will likely counteract cutbacks in government funding, but not enough to sustain the growth rate of the previous five years.
Museums will also be challenged to incorporate new technology into their traditional offerings. Institutions that do not digitize some of their services or exhibits, such as by offering virtual tours, risk falling behind the curve.
Religious organizations experienced an average growth rate of 3.7% between 2013 and 2018. The sector relies heavily on donations from individuals, and a stronger economy has helped religious institutions stay profitable.
Future Challenges for Religious Organizations
Cultural trends are the key issue for religious institutions moving forward concerning funding and participation. Because revenue is heavily concentrated in donations, profit margins are not reflecting the demand for the industry, which research suggests may be waning. Pew Research Center and Gallup Inc. polls indicate that fewer individuals are reporting that religion plays an important role in their lives. IBISWorld predicts that the average revenue growth rate will drop for religious organizations moving forward to 1.5% over the next five years. To buck cultural trends, religious organizations will need to be creative in how they reach and engage younger generations.
Colleges & Universities
Growth among colleges and universities declined between 2014 and 2019 at an average rate of -0.9%. The stronger economy made it more appealing for high school graduates to go straight into the workforce, which hurt industry demand. Increasing concern over student loan debt is also hurting college and university industry prospects. Nitro College estimated student loan debt to be $1.5 trillion in 2019.
Future Challenges for Colleges & Universities
The future outlook appears a little brighter. IBISWorld predicts an average annual growth of 1.9% between 2019 and 2024. Labor markets are expected to shrink, which will increase demand for higher education. Some of the industry’s growth is anticipated to come from an increasing number of international students attending domestic colleges and universities.
In the short term, colleges and universities will need to monitor their cost of admission increases. Many schools have raised admission rates to offset a decrease in federal support, but increases in tuition may make the cost of attendance too high for some populations. Colleges and universities can help increase enrollment and demand for their services by exploring ways to make higher education more cost-effective for their students.
For More Information
Navigating the changes to your not-for-profit organization is the key to long-term success regardless of your particular industry.
For more information about how your organization can improve its planning and operational strategy, please contact us.
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