This article is part of both our Nonprofit Business Startup Guide and our Business Startup Guide—curated lists of great articles that will get you up and running in no time!
Whether you are thinking of starting a nonprofit, or you are running a nonprofit that is looking to expand, you’re bound to have funding sources on your mind. You probably know everything there is to know about your community or cause, but making decisions about the right approach to handling nonprofit finances can be a challenge.
The reality is that there is no one-size-fits-all approach to nonprofit funding sources. From government grants to alumni donations, something might work for you that wouldn’t be a good fit for others, or something that hasn’t worked in the past could be on the table for your organization at this point in its growth.
In this article, I’ll cover:
- Why the concept of “Capacity Building” should guide how you look at funding your nonprofit.
- Excellent options for funding sources.
- Expert tips on funding from nonprofit leaders.
Focus on Capacity Building
Obviously, nonprofits have to look at financing differently than a for-profit venture would. Less obviously, seeking a constant growth of donations, or attempting to redouble fundraising efforts—such as trying to raise more than last quarter, or than last year—is often misguided. While the thought of continued expansion sounds like a wonderful notion, a philanthropic organization that isn’t factoring in capacity building, or how to be scalable in the long haul, may never be successful. Capacity building is defined as: “Building up skills and abilities, such as decision making, policy-formulation, appraisal, and learning…Capacity building is a way to strengthen an organization so that it can perform the specific mission it has set out to do and thus survive as an organization.”
Focus on keeping your current programming and organizational capacity robust and confidence inspiring.
Realistically speaking, you may not be able to continually raise more and more money. You will have to factor in the unexpected events that can siphon potential donor dollars from your cause. Things like economic downturns, and other causes (such as a natural or humanitarian disaster) gaining more traction with the public are unpredictable. Rather than shooting for constant growth, it is more practical to consider how much you need to cover your existing program and administrative expenses, including on-going training, and build a plan for sustainability from there. Expand when you can, of course, but focus firstly on keeping your current programming and organizational capacity robust and confidence inspiring, and then aim for a financial situation that will facilitate that sustainably.
The choice of who to reach out to and where to accept funds from is often a complex one. Funding sources vary from organization to organization, and many nonprofits have multiple channels they actively collect revenue from.
When it comes to fundraising, plan ahead
Expert Tip: “Passion alone isn’t enough—I wouldn’t have done this had I not been convinced that the numbers make sense.”
Tariq Fancy, of the international tech nonprofit Rumie, points out that creating a business plan is step one to making sure you’ll have enough money to keep your doors open. Having worked previously as an investment banker, Fancy knows the importance of sitting down and creating a feasibility plan for a business, and took the same approach when it came to starting a nonprofit venture. “I’m passionate about what we do but I realize that passion isn’t enough—I wouldn’t have done this had I not been convinced that the numbers make sense and will only get better in the future,” He says. Do your homework before you start looking for funding.
Let’s explore some ways that you can fund your nonprofit:
While this is one funding source that might immediately jump to the forefront of your mind as you consider your options, it’s far from the only choice for nonprofits. That said, many organizations do collect at least a part of their budget from this channel. There are several different ways to go about this, but the two most common options are to comply with an existing government program (such as a Head Start) and receive its already allotted funds, or alternatively, there are certain pools of government funds (such as the Prevention and Public Health Fund) that could send money your way if you or your organization is a particularly impactful, innovative, or cost-effective program. With either option, you’ll need to reach out and apply. If the sheer volume of grant options seems daunting, the United States government fortunately has a searchable online database of government grants to help you find what you need.
For some organizations, government funding is ideal and straightforward. For others, things like meeting the regulations required or negotiating contracts can prove prohibitive. You will want to do your research and make sure that applying for government grants is in the best interest of your mission.
In a similar category to a government-funded grant, there are also private and public foundations that collect donations and award nonprofit organizations grant money based off of a set of criteria or the foundation’s stated mission. There is usually an application and approval process for these awards, sort of a nonprofit version of earning a scholarship. There are a few online database resources that can help you in your search, Foundation Center is particularly useful for it’s extensive directory and free educational resources.
Founder or Single Major Donor Financing:
Think of this as the nonprofit equivalent to a startup that is largely funded by the owner’s personal accounts. There are some philanthropic ventures (yours may be one of them) that begin with a large cash infusion from, perhaps, the named head of the foundation. This is great, and can actually be an excellent way to get a nonprofit from the idea phase to implementation.
The drawback here, of course, is that it is quite rare to find a founder or initial major donor who has 1.) an infinite supply of sustainable funds to move your organization forward perpetually, or 2.) a scalable supply of money when your organization starts to grow, especially if it grows quickly. Will you be able to meet demand for your programs? If you are starting with this channel of funds, think and plan carefully for the point at which you will need to supplement them or transition to new funding sources, to avoid being caught off guard when the money runs thin.
Other than government grants, this is probably what most people would think of initially when considering where a nonprofit could collect its funding. Think of fundraising events: silent auctions, sponsored runs, car washes, bake sales, and just flat-out individual contributions of money. An excellent example of an organization that relies heavily on this method is the World Wildlife Fund. In 2013, their single biggest source of revenue came from individual contributions—over 86 million dollars. You can see the financial break down here. For the most part, this is a very effective channel, particularly for those organizations with large marketing budgets and causes that have a wide appeal and tug at the heartstrings.
Build relationships with your donor base
Showing that you are not only passionate, but accessible and listening to your donor base can go a long way. As Caroline Cummings, our VP of Business Development here at Palo Alto Software notes, “Investors invest in people first, and ideas second.” So it often is with nonprofits. Build strong relationships with funding sources.
Expert Tip: “Build relationships with donors.”
Lorrie Lynn King, founder of the international women’s health nonprofit 50 Cents. Period. notes that “donors respond to passion and they give to relationships, not causes. Every day, friends pass along news and funding ideas. Personal referrals have been our greatest resource.” She says she always makes time for a cup of coffee with someone a friend refers as a possible funding source.
Current Beneficiaries or Fees For Service
This funding source is essentially self-explanatory. Many nonprofits, depending on what they are offering, simply must charge at least a sliding scale fee to cover either the services or goods they are providing. Examples include certain hospitals, public health clinics, and manufacturing nonprofits that provide at-cost goods. If this is reflective of your organization’s situation, you will face some decisions about where to source your products from to give your community the lowest cost options for the highest quality. You may also consider a sliding scale of prices based off of the recipient’s income.
Past Beneficiaries or Alumni
This funding source works particularly well for organizations, such as universities, rehabilitation facilities, and hospitals, that serve a large community with turnover (patients get well, students matriculate). Princeton University is exemplary in this regard; over half of their alumni contributed donations in 2013. If the organization that you are running has a large group of people that pass through and benefit from it, you may consider that these participants in your programs would like to give back and help others receive the same benefits or assistance they did.
Expert Tip: “Screen your members if possible, and take their feedback into account when you act.”
Depending on the mission of your organization, you could decide that offering membership is a viable option for your nonprofit. While this won’t necessarily work for all nonprofits, this is a great way to collect dues and donations for some, particularly if you are able to offer exclusive benefits or public recognition to members. Silicon Valley area nonprofit The Club has found success with this funding source because it fits their mission—the mentorship of women in business leadership. If you find an avenue for building an organization around a specific demographic, consider whether this could be a membership-based venture. If this funding source is a good fit, request that members pay an appropriate fee which can then be applied towards programs, events, and general administrative needs in the organization. For the right organizations, membership can be a consistent and sustainable source of revenue.
There are advantages to offering membership
Membership based nonprofits have some clear advantages when it comes fundraising. For one, you have a constant source of revenue for your organization. The membership structure that allows you to decide how much you need from each member and what programs and services will come with membership. This model may not work for every organization, but if you are running a membership based nonprofit, Annie Rogaski of Silicon Valley nonprofit The Club has this advice:
- Gather Member Feedback: Check-in on a consistent basis over time to ensure your vision still resonates with your membership. For example, ask your members if they feel a recent event was a success, and why. Collecting feedback and taking it into account when you act will help you grow in the right direction so you can maintain and expand your membership base.
- Screen Your Members: If possible, to ensure they meet your criteria and will be engaged with your programming. The Club has prospective members fill out an application, so they can be sure the applicant will be the right fit for the organization. You want members that will be involved with your mission, and long-term contributors to your organization.
Rogaski also suggests to seek connections with corporate sponsors. Whether it’s a monetary donation or donating use of space for an event, this type of arrangement is a win-win. You get to meet some of your organization’s needs, and the company sponsors improve their philanthropic image within the community. Different corporations will have different giving programs, this list of types of corporate funding options is helpful as you familiarize yourself with the possibilities that may work for your organization.
Many for-profit groups see giving back to their communities as a vital part of their mission, and as long as you accept donations from socially responsible corporations that are aligned with the goals and values of your nonprofit work, this can be a valuable strategic partnership. Some organizations may feel a little apprehensive about receiving funding from a for-profit corporation, and while this can be a very beneficial route, it is important to carefully screen your corporate funding sources.
Know when to say no
“Just because a partnership or donor opportunity presents itself doesn’t mean it’s the right one for you and your organization,” says Lorrie Lynn King of 50 Cents. Period. Donors look for transparency within the funding of a nonprofit, and you want to make sure that the deals you make today fall in line with your organization’s mission, values, and image, to avoid bad publicity or falling donations down the line.
In-Kind Donations of Goods
Examples of in-kind donations include food, clothing, and medicine. The possible nonprofits that this would work for are more limited than other funding sources, but this is an excellent channel if it works with your organizational model. International aid organizations, often called Non-Governmental Organizations, frequently fall into this category. If your organization seeks to bring food into conflict zones, for instance, getting a corporation to donate delivery trucks and food supplies is most certainly in your best interests—as well as the interests of the corporation, for the publicity and tax write-off.
Other than direct donations that support the mission of the organization (for example, food to a food bank), in-kind donations of goods can benefit almost any organization in the form of items to be bid for at a fundraising auction. Typically, these types of donations are procured by a simple phone call or door-to-door campaign. Brainstorm a list of ideas for which companies, grocery stores, or hospitals could possibly have donations set aside, or surplus items that need a purpose, and then reach out.
It’s important to keep in mind that this is a collection of possible funding sources, not necessarily of financial models for running a nonprofit. Particularly applicable to those large organizations that might be hitting 50 million dollars or more per year in revenue, BridgeSpan has a great list that they’ve developed of what they call “nonprofit funding models” that you may find useful as you consider which combination of these funding sources is right for your organization.
If people and businesses are giving money to your nonprofit, that is a wonderful gesture, and you want to ensure that they feel appreciated, heard, and comfortable contributing again, hopefully on a regular basis.
Have you had success with any of these funding methods? Do you have an ingenious fundraising suggestion of your own? Share your story in the comments below!
This article is part of our Business Funding Guide: Fund your business today, with Bplans.
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