Drivers of Income: A study of three social enterprises and how they impact earning

Executive Summary

Poverty is not about income alone, but income (or lack thereof) is a major factor in determining who can escape from poverty and who cannot. Better incomes also mean that low-income communities can adapt to climate change and absorb climate shocks. As an organization committed to solving problems of poverty, Acumen invests in companies that offer vital products and services to marginalized communities around the world. We often hear from customer surveys that these products and services help them generate more income. We wanted to put a number on it, and understand those income shifts in the context of overall household income.

We partnered with 60 Decibels to survey customers and suppliers of three Acumen companies: Koolboks in Nigeria, Promethean in India, and Lizard Earth in Sierra Leone. These are productive use of energy (PUE) companies and innovative agribusinesses that supply or source from micro, small, and medium enterprises (MSMEs). These MSMEs range from smallholder farmers to small family-owned businesses to large restaurants where a freezer is a fraction of their operations.

• First, we conducted a baseline survey with recently onboarded customers who could recall their revenues and expenses prior to engaging with Koolboks, Promethean, or Lizard Earth.
• Second, we conducted an endline survey six months later to see how those revenues, costs, and profits had changed.
• Third, we collected data through monthly diaries and longer interviews to get a more holistic view of respondents’ financial health.

Our goal was twofold: First, to conduct a study that would quantify how a company’s product or service impacted its customers’ ability to make money over time; and second, to draw insights from this data to guide our investments toward greater impact and provide valuable learnings to fellow impact investors, purpose-driven companies, and philanthropic funders.

From the outset, we sought to measure MSME drivers of income that companies target: did power costs fall, cocoa prices rise, or dairy yields grow? If all other factors held steady, improvements in those drivers would lead to increased household income. But our companies do not work in isolation. They operate in fragile economies, serve customers that earn income from multiple sources, and are highly vulnerable to macroeconomic shifts. This means in good economic times, household incomes increase. In bad economic times, household incomes fall — but likely not as far as they would have otherwise. If companies drive meaningful profit shifts with their offerings, that is a boon in good economies or bad.

Participation was strong and we gathered a robust data set. Here’s what we learned:

1. PUE companies and innovative agribusinesses have a meaningful economic impact on their customers’ livelihoods. All three companies studied improved the specific drivers of income that they sought to shift for MSMEs (reducing costs, improving prices, and growing yields, respectively).
2. Macroeconomic factors had both positive and negative impacts on customer incomes, but customers overall reported improved financial well-being. All companies operate within an economic context beyond their control. Two out of three companies in this study saw median household incomes fall during the study due to brutal macroeconomic factors. Two-thirds of Koolboks customers reported lower household incomes at endline compared to baseline, yet 55% also reported feeling more financially resilient between the two time periods.
3. Successful companies have the most impact on customers with the lowest starting points. Customers with the lowest revenues at the baseline saw the greatest gains in profits at the endline. For example, Lizard Earth’s farmers in the bottom half of baseline revenues saw a 192% profit increase on average.
4. A better customer experience drives better financial gains. Customers who did not experience a challenge with a product or service were more likely to see their incomes increase. Promethean farmers who did not experience a challenge saw a 40% average increase in profits from dairy, compared to 20% for those who did experience a challenge.

Measuring income shifts and attributing them to a specific product or service works best for companies with a strong pathway from product or service to income. This is a complex endeavor, but the lessons we learned can help other investors, companies, and funders make better investment decisions and support targeted interventions aimed at lifting people out of poverty. Especially as companies scale, continued focus on customer experience and the drivers of income change are critical. By measuring what companies can manage, we as investors and our companies get better at solving problems of poverty. Read the full report here.

Photo credit: Juergen Sauer, Munich

Acknowledgments

This report was co-authored by Acumen and 60 Decibels. We would like to thank our Partners of the Pioneer Energy Investment Initiative: Powering Livelihoods Using Solar (PEII+) and Trellis: Climate Resilient Agriculture Investing.