An impact value chain is a way for social entrepreneurs to show investors how the process of their business generates revenue. The model helps people understand how an organization's non-profit goals are generating financial value.
An impact value chain breaks down an enterprise into five parts:
1) Financial Capital - This part includes what services and products your organization gives out; you can think about these items as your product line or service portfolio. These should be tangible things that make it easy to calculate the monetary returns they generate. For example, if you provide tutoring services, then this would include things like photocopying costs and lesson materials (books, pens, etc). If you run a building construction company, it might instead be bricks, cement, and wood.
2) Human Capital - This section refers to your employees. These might be people you have on salary or volunteers that help out a lot with the enterprise. The calculation is simple: the value of their time multiplied by how much they earn per hour would generate a monetary figure.
3) Social Capital - Your social capital is all about what resources, support, and services you use from outside sources in order to run your organization. When pricing these items, make sure you add in a mark-up for overhead expenses such as office rent and equipment deployment costs.
4) Financial Muscle - In this part of an impact value chain, you calculate how much revenue comes in from contracts between your business and other commercials (e.g., deals with private companies) or governmental organizations. If you are running an agricultural business this would include subsidies, crop donations, and permits to use the land for farming.
5) Community Support - The final part of the impact value chain is all about how much support you get from people in your community (e.g., friends, family, or other non-profits). This can be funded through grants, endowments, and other investments that may not always generate financial returns but instead improve the overall social capital of your enterprise.
When completed, an impact value chain will show investors how revenue is generated by all the different departments within your organization's business model. Donors can understand what drives financial returns for their money; they can see where the investment goes and why it is important.
This model gives people a clear idea of how the process of your social enterprise works. It visually shows investors where their money goes and what impact it will have on society. Many times, social enterprises are faced with not having enough funding to run or maintain their business operations. An impact value chain can help donors see that through investing in your organization, they are actually increasing financial returns for their investment by leveraging other sources of revenue to perform well financially.
The impact value chain breaks down an entire company into its different processes so that people understand the steps it takes to generate revenue and can determine whether or not this is a good investment opportunity for them. This way, the needs and goals of your business become clear and understandable which increases the likelihood of people wanting to invest in your company.
So, what do you think? Do you understand what an impact value chain is and how to use it in your Social Enterprise?
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