Smart budgeting can unlock the hidden power of your online community. It's more than numbers; it's the secret to turning vibrant ideas into lasting impact. Whether you're starting fresh or looking to elevate an existing community, this guide shows how strategic financial planning can positively impact your community’s success.

Budgeting, often seen as a daunting task, is the backbone of any successful community program. A good budget plan helps you with strategically allocating resources to nurture and grow your online space. 

Unfortunately, there's a noticeable gap in the number of resources specifically aimed at community professionals seeking to master this skill. Unlike traditional business roles, where budgeting resources are abundant, community professionals often find themselves navigating these waters with little or no guidance.

This scarcity of tailored budgeting advice means many of you have had to rely on informal networks or piecemeal information to shape your financial strategies. Recognizing this, my goal here is to bridge this gap. 

In this blog, we're not just focusing on the 'how' of budgeting but also the 'why'. Understanding the rationale behind each dollar spent will empower you to make informed decisions that align with both your community's immediate needs and long-term goals. 

Budgeting Fundamentals

The importance of a well-structured budget in online communities is clear and supported by data. 

According to the State of Community Management 2017 report, communities with dedicated budgets are significantly more likely to have an approved community strategy (80% vs. 48%), an approved roadmap (47% vs. 15%), and a formal advocacy program (42% vs. 27%). 

Effective budgeting in community management can be transformative.

The Cornerstones of Budgeting

Understanding the basics of budgeting involves forecasting income and allocating expenses. In the context of an online community, this means balancing the costs of technology, content, and staff against potential revenue from sources like memberships, sponsorships, referrals, or renewals.

1. Income Estimation: Begin by estimating your community's income, both its direct and indirect financial benefits.

2. Expense Allocation: Allocate expenses across various areas, including platform licensing, staff salaries, content creation, and engagement efforts.

3. Financial Goals: Set clear financial objectives. Whether aiming for profit, sustainability, or growth, these goals will shape your budget.

4. Flexibility: Ensure your budget is flexible to adapt to the dynamic nature of online communities.

While estimating income and setting financial goals for an online community, it's important to recognize the inherent challenges. Direct revenue attribution is often not feasible for most communities, making it essential to focus on their indirect contributions, such as:

• Enhancing customer loyalty

• Increasing engagement

• Providing peer-to-peer support

• Creating user-generated content

• Identifying new product or service ideas

These factors, though not directly attributable in revenue terms, are correlative, and therefore vital to your organization's overall health. So, when crafting financial goals, remember that balance is key. Aim to incorporate both tangible and intangible objectives, aligning them with the broader goals of your organization. 

This approach, focusing on a broader set of value-driven goals, acknowledges the unique contributions of online communities and ensures that your budgeting strategy is both realistic and aligned with organizational priorities.

Why It Matters for Online Communities

Effective budgeting in online communities supersedes mere number crunching. It's about understanding the value of engagement, the cost of innovation, and the importance of investing in the health and growth of the community. A well-planned budget ensures that the community has the resources to grow, engage its members, and thrive.
For a closer look into the fundamentals of budgeting, check out the bibliography at the end of this article, which includes a selection of books and online resources on business and financial planning.

Introducing the 40-30-20-10 Rule

Navigating the financial landscape of online community management can be pretty daunting. To reduce the sting of it, I’d like to introduce an adapted budgeting framework: call it the 40-30-20-10 Rule. This guideline offers a structured yet flexible approach to budget allocation, specifically tailored for online community programs.

Breaking Down the 40-30-20-10 Rule

1. 40% - Core Operations: Allocate 40% of your budget to essential operational costs. This includes platform licensing, staff salaries, and basic technology needs. These are the fundamental elements that keep your community functional and accessible.

2. 30% - Engagement and Content: Dedicate 30% to engagement and content. This covers content creation, community events, and member engagement initiatives. While your staff may work to create content and events, this part of the budget includes things like expert graphic design, consultant services, webinar tools, software subscriptions, event swag, and more. Engagement and content is pivotal in keeping your community vibrant and active.

3. 20% - Growth and Development: Invest 20% in growth and development efforts. This can be channeled into marketing, outreach, new feature development, or expansion plans. It's about strategically scaling your community and enhancing its offerings.

4. 10% - Contingency and Innovation: Set aside 10% for contingency and innovation. This is your buffer for unexpected expenses and your fund for exploring new ideas or technologies. It ensures your community remains resilient and forward-thinking.

The Flexibility of the 40-30-20-10 Rule

Rules are made to be broken, and so is this one. While the percentages provide a starting point, they are not set in stone. Each community is unique, with its own set of challenges and opportunities. Adjust these allocations based on your community’s specific needs and goals. Use them as guide rails.

For instance, a newer community might invest more in growth and development, while an established community might allocate more funds towards engagement and content.

Practical Application - Budgeting in Action

Translating the 40-30-20-10 rule into real-world scenarios, I’d like to present two illustrative examples.

These "back of the napkin" models demonstrate how the rule can be adapted to different contexts - a Fortune 1000 B2B SaaS company launching a new online community, and a mid-sized nonprofit seeking to enhance its established community. 

Each example provides a high-level budget breakdown, showcasing how strategic allocation can align with specific organizational goals, from enhancing customer engagement and reducing support costs to fostering active volunteer participation and providing valuable data insights.

The goal of these examples is to provide a high-level budget breakdown for each scenario, illustrating how the 40-30-20-10 rule can be applied while aligning with their specific business and operational goals.

Example 1: Fortune 1000 B2B SaaS Company

SplungeWare, a dynamic Fortune 1000 B2B SaaS company, is gearing up to launch an enterprise community platform. The goal is to foster customer upskilling, enhance product loyalty, and streamline support costs, paving the way for a vibrant, interactive online community.

Assume a hypothetical total budget of $750,000 for the first year.

40% Core Operations ($300,000):

• Platform Licensing: Purchasing a license for an enterprise-grade community platform.

• Platform Integration: Costs for integrating the community platform with LMS, CRM, and ticketing systems.

• Community Manager Salary: Hiring a skilled community manager to oversee the community's launch and operations.

30% Engagement and Content ($225,000):

• Program and Content Development: Creating educational and upskilling content that aligns with the goal of increasing customer loyalty and product upgrades.

• Initial Engagement Initiatives: Activities and programs to encourage initial user participation and engagement.

20% Growth and Development ($150,000):

• Marketing and Promotion: Campaigns to attract users to the new community, emphasizing the benefits of upskilling and product knowledge.

• Cross-Promotion with Products: Integrating product promotions within the community to drive upgrades and new purchases.

10% Contingency and Innovation ($75,000):

• Reserve for Unexpected Costs: Buffer for unforeseen integration, consulting, or operational costs.

• Future Advocacy Program: Initial planning and resource allocation for a future customer advocacy program.

Example 2: Mid-sized Nonprofit with Established Community

Save the Monchhichi is a dedicated mid-sized nonprofit, passionately working to keep social activists and volunteers deeply engaged with their cause. With an established online community on a turnkey platform, they are now focusing on expanding their reach and deepening member engagement through enhanced events and data-driven strategies.

Assume a hypothetical total budget of $300,000 for the year.

40% Core Operations ($120,000):

• Platform Costs: License renewal for the turnkey community platform.

• Existing Staff Salary: Continuation of salary for the current community manager.

30% Engagement and Content ($90,000):

• Community Events: Organizing online and potentially offline events to engage activists and volunteers.

• Content Focused on Activism and Volunteerism: Development of content that resonates with the community's cause and goals.

20% Growth and Development ($60,000):

• Recruitment of a second Community Manager: Costs associated with hiring a second community manager specialized in events and data analytics.

• Marketing for Volunteer Engagement: Targeted campaigns to attract and retain volunteers and activists.

10% Contingency and Innovation ($30,000):

• Data Dashboard Development: Initial investment in developing a data dashboard for leadership to access community metrics.

• Emergency Fund: Reserve for unexpected costs or opportunities that arise.

These "back of the napkin" models offer a high-level view of how the 40-30-20-10 rule might be applied in different organizational contexts, aligning budget allocations with specific goals and aspirations of the organizations.

Monitoring and Adjusting Your Budget

View your community budget as a living document, inherently dynamic and evolving alongside your community. Integrating budget review into your regular community management activities ensures it reflects the current realities and needs of your community.

Some Key Practices for Dynamic Budget Management

• Integration with Community Metrics: Embed budget reviews into your analysis of community engagement and performance metrics. This approach helps correlate financial decisions with their impact on the community.

• Flexibility with Tools: Use spreadsheets for their adaptability and ease of updating. They are a practical choice for tracking changes and planning future allocations.

• Consistent Review Schedule: Establish a regular schedule for budget reviews, aligning it with your overall community management cycle. Whether monthly or quarterly, this consistency is important for timely adjustments and informed decision-making.

By treating your budget as an adaptable tool, you can ensure it consistently aligns with the evolving needs and goals of your online community.

Conclusion

The 40-30-20-10 rule provides a structured yet adaptable framework to guide your budgeting process, balancing core operations, engagement and content, growth and development, and agile contingency planning. This rule is about aligning your financial strategy with your community's heartbeat – its goals, needs, and potential.

Remember, your budget is a living document, evolving as your community does. Regularly revisiting and adjusting your budget ensures that it remains relevant and effective in supporting the dynamic landscape of your online community. The goal here is not to set rigid boundaries but to provide a flexible pathway that allows your community to thrive and grow.

Now, it’s your turn. What techniques have you successfully employed when creating a budget for your community? How have you navigated the unique challenges and opportunities in your community’s financial planning?

Bibliography/Resources:

Books on Business Budgeting: 

"Financial Intelligence for Entrepreneurs" by Karen Berman and Joe Knight - An accessible guide to financial information and management.

"Budgeting Basics and Beyond" by Jae K. Shim and Joel G. Siegel - Offers detailed insights into various budgeting techniques, applicable to online communities.

"The Essential CFO: A Corporate Finance Playbook" by Bruce P. Nolop - Provides strategic financial insights adaptable to community management.

Additional Online Resources:

“3 Best Practices When Budgeting for Community and Social Programs.” by Shannon Abram. The Community Roundtable. 2015? Contains several practical considerations for budgeting your online community.

“42: Ask for 5, Get 3.” In Before The Lock. Podcast. 16 August 2023. Erica Kuhl and Brian Oblinger speak at length about budgeting for your online community. Show page includes a handy link to a budget example in a spreadsheet.

“Budgeting for Your Online Community Build: A Comprehensive Guide with Cost Estimates” by Maruxa Murphy, LinkedIn. 8 September 2023. Provides some further concrete examples of budgeting allocations for online communities aimed at startups and influencers.

“How Much Does It Cost To Start An Online Community: Unveiling the Capital Expenditures.” by Henry Sheykin. FinModelsLab. 19 August 2023. This detailed breakdown for starting an online community budget was a helpful if perhaps overly broad resource from someone outside of the community building profession.

“Section 1: Planning and Writing an Annual Budget.” Community Toolbox. Accessed 28 November 2023. This lengthy article provides some good, general advice about budgeting even though it is geared towards nonprofits.

Disclosure:

Parts of this article were developed with the help of ChatGPT-4, an AI language model by OpenAI. ChatGPT provided insights and suggestions on budgeting strategies and article structure. The final analysis and content are a product of my own expertise.

This article was originally published in the Q1 2024 issue of Community Leaders Magazine.