For nonprofit professionals, identifying funding sources and deciding on a funding model for their organization can be one of the most challenging tasks at hand.
Every organization needs money to stay afloat. Nonprofits are no exception. Money is a frequent topic of conversation amongst nonprofit professionals, and the discussions become even more heated during economically unstable times.
On one hand, there is a multitude of funding models to choose from – which can create some confusion. On the other hand, some nonprofits can feel ‘stuck’ and limited in their options.
To make things even more challenging, many nonprofit professionals hesitate to focus their efforts on raising funds, reinforcing the misconception that seeking money is somehow ‘bad’.
To offer help and guidance when it comes to such a complicated topic, we’ve compiled a list of 6 main nonprofit funding sources that you might want to consider:
1. Individual Donations
Of all donations made to nonprofits, 71 percent come from individuals. (The Balance)
Individual donors can make one-time or recurring donations. They also give in a variety of ways: online and offline, through events, auctions, planned giving, and more.
When it comes to individual donations, it’s important to cover all your bases, since they make up such a big part of a nonprofit’s funding. For the most part, this is a very effective funding source, particularly for those organizations with large marketing budgets and those with causes that have a wide appeal (e.g. cancer).
Here are a couple things to have in mind when considering individual donations:
1.1. Gift size
Tap into all categories of individual donors, from major donors to regular donors.
Major donors give less frequently but their gifts are significantly larger. Ensure that your fundraising model nurtures major donors. What’s considered a ‘major gift’ depends on the organization. Look at your giving history and identify the largest gift(s) you received in the past. For a large and established organization, this can be a six-figure gift, whereas for smaller nonprofits, this might a couple of thousand dollars. Cultivating major donors is a bit of a different ordeal compared to cultivating regular donors.
To prospect major donors, consider investing in a wealth screening software. If possible, consider appointing a team member to work with major donor leads. To secure a large gift, you usually need to attend a number of meetings, invite the potential donor to your offices or to meet your Board and provide frequent and relevant updates.
Regular donors usually give more frequently but their gifts are smaller in size. To cultivate regular donors, you can employ a multitude of donor acquisition and donor retention techniques. Many nonprofit professionals recommend that you get regular donors to become recurring donors. This provides your nonprofit with sustained income and allows you to plan your activities.
1.2. Online or offline
You can receive individual donations online or traditionally (offline). While online fundraising grows day-by-day, and more individuals seek information online, don’t be quick to dismiss traditional fundraising.
The best results are usually seen when you combine traditional and modern fundraising techniques.
1.2.1. Online fundraising
Crowdfunding (see below) works best for specific campaigns and when you’re telling specific stories. When you’re not running a specific campaign, your website is your best bet. It is the permanent home to your online fundraising efforts.
It’s crucial to invest time and effort to make your website and online donation page shine. Make sure that the potential donor encounters a user-friendly website and has a smooth experience. Don’t hide your donation button! A donor should be able to find your donation link within a couple of seconds of your donation page loading. Design your donation page to be consistent with the rest of the website.
It is also crucial to design a donation page that is mobile-friendly/responsive. Keep the donation page to one page. Keep it simple and clear, with a call to action displayed front and centre. Use powerful images and offer multiple payment options.
Read more about how to design a great donation page here.
In simplest terms, crowdfunding is all about many individuals each making a small donation – $10, $50, $100, maybe more. Crowdfunding has become popular with the proliferation of various online platforms for fundraising and is used both by corporate organizations and nonprofits.
There are many different types of crowdfunding (reward-based crowdfunding, human capital crowdfunding, equity crowdfunding etc), but the one most used by nonprofits is donation-based crowdfunding. To get the most out of donation-based crowdfunding, post regular updates, use compelling images and videos, offer incentives, share via e-mail and on social media. Make sure to tell a story – a story is what fuels a crowdfunding campaign.
– Peer-to-peer fundraising
Peer-to-peer fundraising is a sub-category of crowdfunding. Instead of having one crowdfunding page where everyone donates, with peer-to-peer fundraising, individual fundraisers usually set up a personal fundraising page to accept donations, which are then received by your nonprofit.
This strategy makes use of your donors’ existing networks. It encourages supporters to reach out to their peers, friends, coworkers, and family members for donations.
Peer-to-peer fundraising is effective because it builds on relationships, uses your already-existing donor base, and helps build social proof. We are more likely to trust a publication when it was made by a friend or a family member. Peer-to-peer fundraising also works well because it’s exponential. All the individual campaigns by your supporters ripple outwards and bring you more donors.
1.2.2 Offline fundraising
– Direct Mail: This offline fundraising method is still very much in use by nonprofits since it is generally low cost and effective. It’s particularly useful for smaller nonprofits or nonprofits that act locally. Additionally, older donors are more likely to prefer direct mail. If your nonprofit has an older donor pool, you will find direct mail highly effective.
– Events: Events have been effective fundraising tools for many years because they provide a space in which the nonprofit and potential donors can interact. Events can boost your online fundraising too. Donors are more likely to give if they can put names to faces.
– Door-to-door: Although door-to-door fundraising has diminished over the years due to their resource-intensive nature, they are still utilized successfully by many organizations, especially political organizations.
– Phone Solicitations: Phone solicitations are donation requests done over the phone, ranging from one employee making a couple of ‘thank you’ calls to large telemarketing campaigns. Like door-to-door fundraising, this technique has diminished over the years as online fundraising grows, but it can still be effective for some nonprofits.
Nonprofits can apply for grants from the government at local, state, and federal levels as well as private and public foundations. Generally, you are not required to repay any money awarded to you through a grant. In almost every country in the world, in order to be awarded a grant, your organization needs to have charitable/nonprofit status.
Every grant-giving organization will have different requirements, and those can also depend on the country in which your nonprofit is registered.
One advantage of grants is that they can fuel large projects, enabling large-scale societal impact that wouldn’t otherwise be possible.
The downside is that it can take a significant amount of time. It first takes time to develop grant-writing skills that actually win grant proposals, it takes time to write a winning application, and then it can take time for you to see the funds.
In addition to that, grants also come with specific conditions attached. These conditions apply to things like how exactly you can use the money. They also have specific reporting requirements that you should consider before applying. The conditions can also be related to particular outputs or outcomes or achieving agreed milestones.
Grants can be very appealing to nonprofits, but they need some thought before you apply for them. Here are a couple of things to consider before deciding to use grants as part of your fundraising/financing model.
– Are we able to invest resources in writing winning grant applications?
– Can we meet the grant conditions?
– Are the activities we would conduct consistent with our mission, our aims, and our strategy?
– Can the activity continue after the grant funding ends?
For some organizations, grants will be the ideal source of funding, whereas some will find them too cumbersome and restrictive. This is why it’s important to answer the questions above to make sure grant funding is what’s best for your nonprofit at this point in time.
If you’re based in the United States, the US government has a searchable online database of government grants to help you find what you need. Foundation Center is particularly useful for it’s extensive directory and free resources.
3. Corporate Sponsorships
Corporate sponsorships can be an excellent source of funding for nonprofits.
Corporations are usually keen to partner on projects to improve their philanthropic image or to work on becoming a more socially responsible organization.
Different corporations will have different giving programs – some of which may work for your organization.
There can be some reluctance around partnering with corporations. However, there are many socially responsible corporations out there. As long as you accept donations from those aligned with your nonprofit’s mission and values, this can be a valuable funding source.
Value alignment is especially important since today’s donors demand transparency, and being very careful about whom you choose to partner with can safeguard your reputation later down the line.
Corporate support usually comes in three major forms, as seen by NPS:
- Philanthropic – no-strings-attached donation, similar to individual giving
- Event sponsorship – episodic or short-term support, typically event-based
- Cause marketing – longer-term thematic engagement
There is also donor matching – when corporations match donations made by their employees.
When considering corporate sponsorships as one of the funding sources for your nonprofit, don’t forget to consider the overhead costs – someone will need to manage the partnerships, especially if you’re thinking of making corporate partnerships one of your main sources of income.
4. Membership Fees
This nonprofit funding source won’t necessarily work for every nonprofit, but it is worth looking at.
Consider the mission of your nonprofit, and then decide whether you want to utilize the membership fees revenue stream.
This funding source is particularly effective if your nonprofit can offer exclusive programs and or perks and benefits to its members.
A sub-category of the membership model is funding through past beneficiaries or alumni. This model works particularly well for hospital and universities, who incite a sense of ‘giving back’ in their past beneficiaries.
This particular ‘past beneficiaries’ funding source, therefore, works if your organization serves a large community with a high turnover. In this regard, Princeton University is a stellar example.
The university has become very adept at tapping alumni for donations, boasting the highest alumni-giving rate among national universities—59.2 percent. In 2008, more than 33,000 undergraduate alumni donated $43.6 million to their alma mater. As a result of the school’s fundraising prowess, more than 50 percent of Princeton’s operating budget is paid for by donations and earnings from its endowment. (Bridgespan – Barbara Christiansen, Peter Kim, William Foster)
This works because past beneficiaries feel like they’ve received great value from the institution in the past, and are keen to help others receive the same benefits. Past beneficiaries see the individual benefit they received in the past as serving higher social good.
Before deciding to use membership fees, in one capacity or another, as a funding source, ask yourself the following questions.
– Do we run programs that produce loyal supporters and evangelists?
– Can we invest in long-lasting building relationships with our beneficiaries?
– Do we have the capacity to reach out to beneficiaries after they finish using our services?
– Do we offer exclusive perks and benefits to justify a membership fee?
5. Selling Goods and Services
Another funding source your nonprofit can consider is selling goods and/or services.
For example, you can sell branded goods to bring revenue to your organization. These items typically include t-shirts, tote bags, mugs, cookies, and other items. For example, Goodwill Industries is probably the largest nonprofit retailer.
Many nonprofits also charge fees for some of their services.
E.g. Hospitals bill patients, museums ask for admissions fees, theatres sell tickets, civic organizations charge dues, colleges require tuition and so on.
This can be a great source of income for your nonprofit, but as always, this funding source is not always applicable to every nonprofit.
According to the National Center for Charitable Statistics, such sources of revenue provided almost half (47.5 percent) of the total revenue for public charities in 2013. Another quarter of revenues came from government contracts for services.
Selling goods and services is sometimes also called ‘trading’ or ‘earned income’. Here are more examples of selling goods and services:
- selling tickets to events
- creating and selling publications
- selling in-house expertise e.g. writing, training, consultancy
Nonprofits can trade in most countries. However, if selling goods and services make up a significant portion of your budget, seek expert advice. If these activities are not related to your primary purpose there are charity and tax law implications. Be careful of earned income and keep track of the percentage of your organization’s income that is through goods and services.
6. In-kind Donations
In-kind donations will not be helpful to every type of nonprofit, but can be an invaluable source of support for nonprofits like animal shelters, homeless shelters, safe houses, or humanitarian relief organizations.
Examples of in-kind donations include food, clothing, and medicine. If in-kind donations work for your organizational model, they can save you many dollars. For example, if your organization seeks to bring food and water into areas struck by natural disasters, for example, getting in-kind supplies is most certainly useful.
It can be the case that you can’t directly use the in-kind donations for your programs. In this case, you could always use them in auctions (depending on the type of items). If you choose to do this, you have to clearly communicate (ideally on your website) which items you’re able to accept, and where are your collection points – if not at your offices.
It’s important to note that in-kind donations do not only include items like food, clothing, and medicine. In-kind donation can be someone delivering a speech or a workshop for free or someone building your website at no cost.
While opinion varies as to what a nonprofit’s “ideal” funding model is, utilizing several diverse sources to achieve sustainability is generally a good practice. In general, it is advisable for nonprofits to never receive more than 30 percent of their funding from any one source. If an organization loses 30 percent of its revenue, it could probably restructure in order to survive.
It’s important to keep in mind that we’ve outlined possible funding sources here, not necessarily financial models for running a nonprofit. If you’d like to learn more about financial models, read this article By William Landes Foster, Peter Kim, and Barbara Christiansen.
When it comes to securing funds for your organization, make sure to have a plan in place. Invest in relationships with donors, whether they are individuals, foundations, corporations or government funders. All of these relationships take time to develop and need to be cultivated. You should respect every kind of support.
It takes creativity, commitment, and hard work to solve income challenges. Each of the funding sources has possibilities and challenges, and each has its advantages and drawbacks. Regardless of which one(s) you choose, they all take effort, focus, and investment.
We hope this article helped you begin to understand your options so you can start choosing your ideal funding sources. What’s your ideal mix? Which ones will be your main sources of income, and which ones will you utilize only occasionally? Whatever you choose, it’s important to make sure it works for your nonprofit – it should help you deliver your mission and sustain your activities.
For more nonprofit tips, visit our nonprofit blog.