Income Generation in a Co-operative


Upon completion of this module the reader will know and understand the following:

  1. Planning strategies for income generation,
  2. Management of the income generation project,
  3. The internal and external factors that influence the financial/production prospects of a co-operative,
  4. SWOT analysis,
  5. How to analyse the internal environment,
  6. Marketing strategies and common mistakes.

Basics

Materials for Download 

External Resources

How to do it

The revenue generated from sales or services provided are the life blood of any business. A co-operative movement is started so that there can be economic participation by members in the mainstream economy.

Co-operatives normally want to play a major role in sustainable development within their community. If the co-operative is not generating a sustainable income it would be difficult for them to reach their objective regarding creating opportunities and widening survival strategies for the poor. The aim of building strong financial resources is done in order to distribute these resources equally among the members.

Planning strategies for income generation

Income generation is a strategic and tactical process. The co-operative must ensure that they have planned production and service forecasts accurately in order to:

  • Increase sales volumes
  • Reduce production costs
  • Improve product or service mix
  • Reduce the amount of capital spent on unnecessary equipment or stock
  • Make use of gaps that exist in the target markets and know it optimally
  • Know what the customer wants
  • Know what your competitor is doing

Managing your income generation project

Choosing the correct product / or product mix will determine the success of your venture.

If the co-operative wants to ensure a good influx of revenue, it must focus on production and sales turn around. This is an important factor that ensures a consistent income flow.

The members must not only focus on production and become relaxed when the produced or manufactured items must be sold. The manager of the co-operative must be knowledgeable on all aspects of production and distribution

Sales forecasts are an important tool in any income generation project as this will show whether or not the co-operative is on or off target with production and distribution. A contingency plan should be in place to ensure that there is a plan ‘b’ for any situation that may prohibit them from reaching their target.

The internal and external environment

There are many pressures and challenges faced by a co-operative, both internally and externally. If these conditions are not understood then the future prospects of the co-operative are not very bright. A good board is a strategic board and is continually analyzing the internal and external environment facing the co-operative and using this to inform decision-making.

One of the tools that co-operators can use to understand the co-operative and world in which it has to operate is the SWOT Analysis Tool.

What is SWOT analysis?

It essentially refers to a tool that can assist with analysis of the internal and external environment facing a co-operative. It comprises the following:

  • Strengths – these are internal. It is about what the co-operative actually has now. It can be broken up into financial resources (cash and working capital), physical resources (equipment, premises, etc.), human resources (number of people and skills), and organizational capacities (production, marketing and financial).
  • Weaknesses – these are also internal and refer to the actual or present situation. Weaknesses can be analysed the way strengths are done (that is, you can use the same categories). It can be broken up into financial resources (cash and working capital), physical resources (equipment, premises, etc.), human resources (number of people and skills), and organizational capacities (production, marketing and financial).
  • Opportunities – are external to the co-operative. They can be understood at different levels: at the level of the macro (or big) economy, mainly to understand prices like interest rates and the exchange rate; at the sectoral or industry level in which a co-operative is operating; and finally in terms of the local community market.
  • Threats – are also external to the co-operative. Like opportunities they can be understood at different levels: the macro, the industry/sectoral level, and at the community market level.

Internal Environment

Identify in a very honest way whether the co-operative has all the necessary financial, physical and human resources and capabilities to provide this product or service

  • Identify the necessary financial needs for this income generation projects
  • Identify the sources of income
  1. Internal sources of income
    • Membership fees – fees that are paid when a person joins the co-operative
    • Annual Subscription fees- Amount of money paid annually by the members
    • Members share- shares that are bought monthly or annually by members
    • Reinvestment of surplus -assuming the co-operative is successful in terms of income generation it will have to distribute its surplus such that there is reinvestment in the co-operative or “retained earnings”. All co-operatives must provide for at least a minimum of 50% surplus to be re-invested in the co-operative for growth and expansion;
    • Manufactured or produced items
    • Special events
  2. External sources of Income
    There are four main sources of external income:

    • Grants and Incentive Schemes
    • Trade credit
    • Overdrafts and loans
    • Investor Finance

Marketing

Marketing in a co-operative is about securing demand, amongst members and/or non members (the public) for the products made or services sold by the co-operative.

Why is marketing important in a co-operative?

  • It assists with income generation;
  • It helps meet the needs of members and non-members;
  • It helps decide what products or services to sell;
  • It helps determine what prices to charge;
  • Assists with getting products to the market;
  • It informs customers and attracts them to buy;

The main step in ensuring good and effective marketing in a co-operative is proper market research. This entails two important things:

(1) Studying the local market, in a community and beyond – this means researching:

  • what do members and non members want or need;
  • can or is the co-operative producing what people need;
  • how many people will buy what you produce;
  • which people will want to buy the product;
  • what prices will they be willing to pay;
  • where are they located;
  • where do they usually buy;
  • how often and how much do they buy;

(2) Studying competition – this means researching:

  • why do customers buy from competitors;
  • what price do they charge;
  • are there special characteristics to their product;
  • how do they promote price;
  • what are they willing to do to attract customers;
  • how many people buy from them;
  • what share (%) of the local market do they control;

There are 10 common marketing mistakes that co-operatives should try and avoid:

  1. Failing to listen to your members / non-members (customers).
  2. Failing to do the local market research.
  3. Forgetting “small is beautiful” ;
  4. Relying completely on the research numbers.
  5. becoming too ambitious about the local market;
  6. Forgetting the anti-poverty impact on the community;
  7. Avoid asking for the sale.
  8. Relying heavily on minor differences.
  9. Trying to sell a concept that you cannot explain in five words or less.
  10. Ignoring the outside world beyond your own local market


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