Ministry Financial Trends (2011 in Review)
In the first quarter of 2012 we asked members of ECCU’s exclusive Ministry Advisory Panel (MAP)** about their financial performance and other key metrics for the 2011 calendar year. In general, ministries are experiencing a recovery on par with the U.S. economy. Also like the U.S. economy, the results are mixed, with micro and small ministries experiencing three consecutive quarters of negative revenue. Confidence, however, is at a three-year high with 81% of ministries feeling confident or somewhat confident to meet their budgeted revenue goals over the next six months, and the majority of ministries (51%) reporting positive net revenue at 2011 year-end.
** The MAP is composed of ECCU member and non-member ministry staff and leaders representing evangelical Christian churches, businesses, schools, and other ministries. This report was produced by ECCU’s research department.
2011 IN REVIEW
2011 was another challenging year for the U.S. economy. The seasonally adjusted national rate of unemployment, for example, came in at 8.7% by year-end. However, some economic indicators showed encouraging signs that the worst of the depression was behind us. Fourth quarter annualized GDP (Gross Domestic Product) came in at 3% and the unemployment rate was on a gradual decline.
Ministries’ financial performance was mixed as well. Larger ministries generally outperformed smaller ones, and K-12 schools seemed to fare the worst. Through all of this, seasonality patterns held true: Parachurch revenues generally increased in the second quarter, school revenues increased in the fall, and church revenue was the highest in the fourth quarter.
MINISTRY FINANCIAL TRENDS FOR 2011
The following trends have been captured in this format since the second quarter of 2010 (base period). Ministries are segmented by type and size each reporting period. The type and size segmentation framework is as follows:
(Every effort is made to ensure a broad representation of ministries by type and size. The nature of online survey panels and seasonality play a role in our ability to provide statistically significant results. Where statistical significance cannot be achieved, the results are omitted.)
For the most part, churches continued to increase their revenue and attendance numbers compared to the base period (Q2 2010).
- Micro churches, those with less than 200 in adult worship attendance, were the exception. They experienced a persistent pattern of lower revenue over the last three quarters of 2011. This pattern is positively correlated with their attendance decline.
- Medium churches, those with adult worship attendance from 425 to 2,000, experienced a somewhat erratic revenue pattern, but ended 2011 ahead by 11%. Attendance for this church segment seemed to remain stable at approximately 25% above the base period for the last three quarters of 2011.
Below is another way to look at the information presented in the above tables. Notice how small churches, those with adult worship attendance from 200 to 424, show a marked increase in revenue over the base period (+70% by year-end), with only marginal growth in attendance (+9%).
The following table reports attendance and revenue averages for Q4 2011 by church size. The “Low” figure represents the lowest reported number in this category. The “High” figure represents the highest reported number in this category. The last metric in the table is the average revenue per church attendee.
- The average quarterly revenue per attendee was the lowest at micro churches, ranging from a high of $654 in the third quarter of 2010 to $447 by the end of 2011 (a 31.6% drop).
- Although large churches show the second lowest amount of quarterly revenue per attendee at $584, they experienced a 16% average revenue increase for the last three quarters of 2011, compared to the same quarterly periods in 2010.
Reporting schools’ performance has proven a challenge from the inception of the MAP because quarterly calendar periods don’t match a school’s seasonal patterns or the traditional school calendar.
To more accurately reflect the seasonal patterns unique to schools, we asked our school panelists to provide their spring, summer, and fall enrollment and revenue numbers for 2011. The winter 2011-2012 period will be captured in the next MAP survey.
- Large schools, those with enrollment above 500, is the only school segment that saw increases in both tuition revenues and enrollment. Small and medium schools experienced as much as a 78% drop in revenue during the fall period compared to the spring period.
Below is another way to look at the information presented in the above tables. Notice how small schools experienced continuous declines in tuition revenue, whereas larger schools improved in the 2011fall period. It’s unclear why the increase in student enrollment at small schools for the 2011 fall period didn’t translate into increased revenues.
The following table reports enrollment and tuition revenue averages for the 2011 fall period by school size. The last metric in the table is the average tuition revenue per student.
Although a significant number of parachurches participate regularly in the MAP, there is not a statistically significant representation of large and mega parachurch organizations (those with revenues greater than or equal to $20 million annually) for this report. Therefore, those parachurch segments have been excluded from the tables and charts below.
You may also have noticed that a new parachurch segment was added. Parachurches with revenues under $1 million are now classified as “Micro.”
Within the reporting parachurch segments, a trend similar to that of churches and schools can be observed—the smaller organizations are suffering continuing revenue declines while the larger ones are prospering.
The chart below depicts the data from the table above. The positive growth (in red) within the medium parachurch segment (those with revenues between $6 million and $19.9 million) can be better seen here.
The following table reports revenue averages for Q4 2011 by parachurch size.
OTHER KEY METRICS (HOW CHURCHES TRACK GIVING)
To increase the value of these reports, we ask questions on topics that we consider of interest to the ministry community. This time we asked churches to tell us how they track giving from their congregation. Here are the results:
- The method most used by churches to track giving is per giving unit or household (46%).
OTHER KEY METRICS (CASH RESERVES AND NET REVENUE)
Question: How many days of operating expenses did your organization budget for cash reserves during the 2011 fiscal year (or 2011–2012 for non-calendar fiscal years)?
There is no one-size-fits-all formula for calculating the optimal level of cash reserves. With the diversity of organizations in the nonprofit sector, industry materials on this subject fail to capture the uniqueness of all ministry types. One helpful resource is the Nonprofit Operating Reserves whitepaper, published by the National Center for Charitable Statistics (NCCS), whose website includes links to the first edition of the Operating Reserve Policy Toolkit for Nonprofit Organizations.
Another resource, designed specifically for ministry organizations is ECCU’s webinar on Thursday, May 31, 2012, titled Cash Reserves: Why you need them. How to build them. Simulcast luncheons of this webinar will also be available in Brea, Los Angeles, and Dallas. If you're local to one these areas, simply register for the webinar and an ECCU ministry development officer will contact you with more details.
The chart below depicts the average number of days of operating expenses in cash reserves that our church panelists budgeted for the 2011 calendar year. There is a statistically significant negative correlation between the size of ministries and their budgeted cash reserves ratio (the larger the ministry, the smaller the number of days of operating expenses in cash reserves).
(Note: Not enough schools or parachurches responded to this question to achieve statistical significance for their segments. Therefore, this chart only represents churches.)
The following chart reports the average number of days of operating expenses in cash reserves for Q4 2011(churches only):
- As expected for churches, year-end cash reserves levels topped the budgeted cash reserves. December was the highest revenue month for 63% of all ministries according to our May 2010 MAP survey findings. These levels should gradually decline as churches tap into their cash reserves during the lean months of 2012.
Question: On average, what percent of your organization’s cash reserves does each of the following represent?
- Large ministries, perhaps because they find it easier to obtain credit, leveraged operating lines of credit the most (28%) compared to all other size segments.
- Only micro and medium ministries reported maintaining cash reserves in other financial instruments.
Some of these other financial instruments were:
- Cash and cash equivalents in investment portfolios
- Hedge funds, workers' comp loss reserves
- Investment accounts in bonds, equities, and money markets through a broker account
- Stock investments
(Note: This chart includes all ministry types.)
Question: What was your organization’s total net revenue (total gross income minus gross expenses) at the end of 2011?
- The majority (51%) of ministries came within 4% of breaking even.
- 32% of all ministries reported negative net revenues.
- 53% reported positive net revenues.
All indicators point to an improved financial condition for ministries, with the exception of small ministries, which in some cases experienced declines greater than 20%. The most heavily impacted were micro to small churches and small to medium K-12 schools.
Unlike the 2010 year-end, when 34.3% of ministries reported year-end giving was 5% or below their budget expectations, only 19% did so in 2011.
Question: How confident do you feel in your organization’s ability to meet its budgeted revenue goals for the next six months?
- Ministries’ optimism in their ability to meet their budgeted revenue goals over the next six months (March through September 2012) reached a three-year high as 81% feel confident or somewhat confident.
- 11% of ministries feel not confident or somewhat not confident. Interestingly, 60% of these ministries reported positive net revenues between 1% and 9% at year-end.
- 74% of all ministries that reported negative net revenue at 2011 year-end were confident or somewhat confident in their ability to meet their budgeted revenue goals.
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