Retail income, both online and offline, is a critical source of funds for many charities as statutory funding comes under increasing pressure. It is vital that charity shops are managed effectively with a clear strategy in place in order to secure the greatest return on investment…

Time was when running charity shop meant having a handful of dedicated volunteers, a low-cost shop lease and a few bags of supporters’ donations. Provided the sales income exceeded the cost of the lease and running costs, everyone was happy.

These days the major charities run professional retail operations with chains of over 500 shops, including specialist book shops and furniture shops. Many more charities make significant online sales via Ebay and other channels.

Today, fundraisers  who manage charity shops need to be specialists (or have access to specialists) in many things in addition to shop retail. They need to be:

• E-commerce specialists as more and more charity retail sales are derived from online activity (Ebay etc)
• Tax experts able to cope with the complex rules on retail Gift Aid, the taxation differences between donated and bought-in goods and importance of retaining business rate relief
• Expert property lease negotiators able to secure favourable deals from landlords
• Finance experts to monitor finance trends and understand underlying profit margins
• Good people managers able to recruit, train, retain and influence well-meaning and dedicated volunteers
• Risk and compliance experts who can manage health and safety risks, product compliance and stock control
• Advocacy skills – a high street shop is literally a shop window on the work of the charity, so shop managers and volunteers need to be able to talk passionately and in an informed way about the work of the charity.

Retail income is for many charities becoming an increasingly critical source of funding. For hospices, for example, where statutory funding is under pressure, retail income can account for up to 50% of total income.

Consequently, it is important for a charity of any size running a single charity shop or a major chain to run them strategically. This means ensuring a proper consideration of the following factors:

1. The impact of overall fundraising return on investment. Shops are a more cost intensive means of fundraising than other forms of fundraising. Typical profit margins in the range of 20-40% are good by retail standards, however they are lower than the typical returns on direct marketing or legacy fundraising. So, if moving in to charity shops for the first time or expanding your shop portfolio – expect to see a (perfectly legitimate) fall in the headline ROI.

2. Set financial targets (headline income and profit margins) both for the retail operation as a whole and individual shops. If a shop is under-performing, key decisions need to be taken to either turn around performance or to close the shop (hence the need for favourable lease terms).

3. Consider how to maximise income opportunities. This includes ensuring the systems are in place and staff/volunteers are trained to claim Gift Aid on donated goods. There might also be opportunities to turn customers in to regular donors.

4. Overall understanding of the operational risk environment – including the very real risks of fraud, theft of stock, health and safety incidents, and product safety standards.

Retail is a valuable source of income for many charities – but it does not come without risks, both at a strategic and operational level. Fundraisers need to ensure both aspects are covered to maximise the income potential of their charity shops this year.

Jonathan Orchard, Partner, Sayer Vincent