As a nonprofit professional, keeping your organization funded is of utmost importance for sustaining day-to-day operations and pursuing your overall mission. Luckily, there are a variety of effective nonprofit funding strategies to help you do so.
At GivingMail, we’ve worked with a number of nonprofits to help them bring in much-needed revenue and we take pride in knowing that our assistance has set up many organizations for financial success. That’s why we’ve put together this useful guide to help nonprofits like yours learn more about effective funding strategies. Specifically, we’ll cover the following:
- Nonprofit Funding Frequently Asked Questions
- Nonprofit Funding Models to Consider
- Top 10 Nonprofit Funding Sources
By becoming better informed about your options, you can ensure your nonprofit is fully funded and able to make a difference in the world around you. Are you ready to learn more about nonprofit funding and what that means for your organization? Let’s get started.
Nonprofit Funding Frequently Asked Questions
Whether you’re a seasoned nonprofit expert or you’re relatively new to the space, you likely have a few questions about nonprofit funding strategies and the logistics behind them. Here, we’ve compiled a list of answers to some of the most-asked questions on the topic:
1. How are nonprofits funded?
Nonprofits are funded in a variety of ways. Some nonprofits pursue several sources of income, while others tend to stick to just two or three.
A few top sources of funding include grants, major gifts, earned income, sponsorships, event revenue, and individual donations. We’ll cover each of these funding sources (and more) in a section below.
2. Do nonprofits receive government funding?
Many nonprofits receive government funding by applying for government grants. In fact, studies show that more than 80% of nonprofit revenue comes from either government funding or fees for services.
There are many different grants available at the local, state, and federal levels to help support nonprofits that are in turn supporting their own communities.
3. Can a nonprofit organization make a profit?
The term “nonprofit” is a bit misleading; nonprofits can indeed make a profit. In fact, they should in order to ensure the long term stability of the mission.
However, unlike for-profit organizations and typical businesses, a nonprofit can’t make a profit just for profit’s sake. These organizations also cannot give any of the profit to any individual.
Instead, the profit collected must be used for public benefit purposes as recognized under federal and state law.
4. How does nonprofit funding differ from business funding?
Nonprofits have drastically different funding sources and models than typical businesses do. Nonprofit organizations receive funding through individual or corporate donations, foundation or government grants, and other sources. While fees for services or goods sold might make up a portion of their overall revenue, it’s not likely to comprise a majority.
For-profit organizations and businesses, on the other hand, can receive funding from bank loans or investors, although most of their revenue is generated from sales, leasing, or licensing of products or services.
Nonprofit Funding Models to Consider
To keep your organization fully funded, it’s a good idea to take a systematic approach to building and maintaining the reliable income that will support your nonprofit’s mission each year. You should consider several sources and models, and find the one that best suits your organization’s structure, strengths, limitations, and purpose. Here are a few of the most popular nonprofit funding models:
Donation-Based Nonprofit Funding Models
Donation-based funding models rely primarily on asking for donations from individuals. This model is most successful if your nonprofit has a mission that appeals to a significant number of individuals. Although “significant” is subjective, you should be able to “sell” your goals to enough “investors” (also known as donors in the fundraising space) that you’ll be able to fund and perform your day-to-day operations.
To get started, you’ll need an easy-to-understand problem (such as stray animals) and a unique solution (such as a large, volunteer-run sanctuary) that will compel people to give, give, and give some more.
Organizations following this funding model (particularly larger ones) likely utilize a wide variety of nonprofit fundraising channels, including direct mail, email, telemarketing, direct response TV ads, and online advertising.
Bonus tip: Regardless of the size of your organization, it’s a good idea to recruit donors for a monthly recurring giving program. Because, as you surely know in regards to donation-based funding models, retention is everything.
Foundation-Based Nonprofit Funding Models
There are tens of thousands of foundations in the US alone that give billions of dollars to nonprofits through grants. Many of these foundations are funded by just one or two individuals.
If your organization is looking for money from a foundation, then you probably have a few key issues you focus on, such as education or global health. Grants are your lifeline, for which there is a rigorous application process. Your organization must be able to effectively communicate how it will use the money it’s been given to accomplish a specific set of measurable objectives. You should also be in close contact with the foundations throughout the year, providing updates and progress reports and answering any questions.
Nonprofits using the foundation-based funding model usually receive a large amount of support from a small number of foundations, sometimes just one or two. It’s big money, but it comes with a risk. If you lose funding from even one of the foundations, your organization—and the mission you support—is going to be compromised.
Government-Based Nonprofit Funding Models
Some nonprofits serve as almost an extension of the government. These nonprofits typically provide essential services, such as housing or education, and work closely with government agencies to fulfill a need.
These types of organizations often receive significant funding from government grants. In order to do so, they must convince the government to move money from the grant program to their nonprofit.
Government-based funding works best if your nonprofit is an easy match with pre-existing government programs. Nonprofits must meet and follow very specific requirements to receive this funding. Of course, the challenge is that the government programs do change, often significantly, and can be impacted by the results of elections.
Corporate-Based Nonprofit Funding Models
The corporate-based funding model works for nonprofits that build meaningful partnerships with businesses, both locally and on a larger scale.
Many corporations are willing to provide organizations with “in-kind” contributions, otherwise known as a gift of a product or service that they already have. Businesses of all shapes and sizes can make “in-kind” donations to the organizations they support.
For example, Nike might give a nonprofit thousands of shoes to distribute to needy children. It’s good for the organization because, most likely, it couldn’t afford to actually purchase buy the shoes for distribution. And it’s good for Nike because they get a tax write-off as well as a boosted public image.
While in-kind donations are one of the most popular forms of corporate giving, it’s important to recognize that many businesses are willing to make financial contributions as well. For example, thousands of companies employ matching gift programs where they agree to match donations made by employees to eligible nonprofits. Plus, other businesses might be willing to enter into a sponsorship agreement where they trade donations, financial or in-kind, to your organization for good publicity and advertising in return.
Diversified Nonprofit Funding Models
This funding model utilizes a variety of sources of nonprofit funding, and it is the most-used funding model for nonprofits. For example, an animal shelter might accept individual donations and plus grants from local foundations, rather than stick to a single source of revenue.
The value of a diversified approach is that you are less dependent on any one source and therefore are accepting less risk. You also have the opportunity to increase your total revenue since funding is coming from more than one area.
The catch is that each new funding type requires an investment of staff time, effort, and expertise. Many will increase your costs, sometimes significantly. Therefore, you want to be thoughtful before adding a new source of funding. Be sure you understand the amount of effort that will be involved, and that you have the resources to seek these new funds without taking anything away from a more optimal funding source.
Nonprofit Funding Sources: Top 10 Nonprofit Revenue Streams
Since most organizations follow a diversified funding model (as discussed above), you’ll likely be collecting revenue from a variety of sources—meaning it’s a good idea to know a bit about each. There are numerous funding sources that nonprofits can leverage for their missions, but here are ten of the most-used to discuss:
1. Government Grants
Billions of dollars are available each year through government grants. These grants are available at all levels of the government: local, state, and federal.
The scope of government grants is impressive. In fact, there are 26 grant-making agencies and more than 900 programs in the federal government alone. While that is certainly good news, the process can be labor intensive.
The rules regarding each government grant varies, so you’ll need to spend time researching to understand which ones your organization does and does not qualify for. Then, you’ll need to complete an application, which can be its own lengthy process. Finally, if you are approved for the grant, you’ll need to provide updates and show how the grant money is being spent.
To get started, consider checking out grants.gov to search for federal grants your organization can qualify for and to learn more about available government grants.
2. Private Grants
There are tens of thousands of private foundations that give money to nonprofits, and the process is somewhat similar to that of government grants. These can be corporate-owned or family foundations, and can vary dramatically in size.
Foundations usually concentrate on just a few key issues in a limited geographic area, and fund initiatives that are focused on solving these problems. Before getting started, it’s a good idea to do your research and to make sure you are applying for a grant from the right foundation.
The application process itself takes a good amount of time and effort. It is usually detailed and lengthy, and unique to each foundation. But if you do get the funding, this can be a fantastic way to support a particular program within your organization.
3. Major Gifts
The exact definition of major gifts varies from nonprofit to nonprofit. Whether you define a major gift as $2,500 or $100,000, major gifts are some of the largest gifts your nonprofit will receives.
As such, major gift donors should be treated like the heroes they are. You want to build a strong relationship with these individuals and be sure that they receive regular updates. You might also want to meet with them face to face whenever possible to and make them feel as special and appreciated as they are.
You’ll also want to ask them for additional donations. Remember, these donors are especially committed to your mission and want to help in any way they can. Yet understand that, just like smaller dollar donors, major gift donors will also lapse for one reason or another. Expect that, and have other funding sources that can cover the gap.
4. Earned Income
Earned income is revenue that comes from the sale of products or services. This type of funding is especially popular for certain types of nonprofits, such as hospitals or universities. For example, a nonprofit hospital earns income by providing medical services, and a university is largely funded by collecting tuition payments from students.
However, other types of organizations can also receive earned income by selling merchandise or by offering classes. Just make sure the income is worth the extra effort this may take.
Corporate sponsorships can be an excellent source of funding for nonprofits. The idea of a “socially responsible organization” has grown in popularity in recent years, and corporations are often eager to partner with nonprofits to boost their public image.
Remember that sponsors can be recognized as key partners of your organization, but there are a few stipulations. For example, your nonprofit cannot endorse the sponsor’s product, use comparative language, or mention price information—otherwise, the money becomes taxable!
To get started, it’s a good idea to seek out businesses related to your mission, where there is already some sort of connection. Plus, you’ll want to be careful who you align yourself with. You don’t want to risk having your nonprofit’s reputation ruined by a corporation.
6. Matching Gifts
Matching gifts are donations made by corporations to match individual contributions made by their employees to eligible nonprofit organizations. Most are dollar for dollar, but some companies are willing to double or even quadruple donations!
Thousands of companies offer matching gift programs, which means there are millions of individuals who are eligible to participate in a matching gift program.
The concept is simple, but the catch is that the donor needs to initiate the match. So be sure to let your donors know you accept matching gifts, and work to build awareness of your matching gift program through your newsletter, emails, direct mail appeals, and other marketing material.
7. Volunteer Grants
Volunteer grants are a lesser-known corporate giving program. In essence, companies make a donation to nonprofits where their employees regularly volunteer.
Employees must keep track of their hours and report back to their employers. Then, the volunteer’s employer will make a predetermined donation to the organization. Oftentimes this is in a lump sum once an individual has surpassed a certain number of hours, but other programs will provide a certain dollar amount for every hour worked (often between $8 and $15/hour).
Volunteers can save your nonprofit time and money. When their employers offer volunteer grants for their time, that can make their impact even more significant. However, these individuals do need to be managed effectively to create value, so be sure to consider strategic volunteer management before accepting the help.
8. Planned Giving
A planned gift is a contribution that is pledged to be given at a future date, most often when the donor has passed away. There are many different forms of planned giving, including bequests, charitable gift annuities, and charitable remainder trusts.
Planned giving can yield significant results, as it is a way for smaller dollar donors to make significantly larger gifts, often many times the size of their annual gift.
Before getting started, it’s important to recognize that a planned giving program will take time and effort to set up, and the program won’t yield cash right away. However, the long-term impact of a planned giving program for your nonprofit will be tremendous.
9. Event Revenue
Fundraising through events can take a variety of forms from casual potluck lunches to elaborate galas, concerts, and walk-a-thons.
Nonprofit fundraising events allow donors to meet face to face (or virtually) with the people their dollars have helped, members of your team, and other like-minded supporters. Events also allow members of your team to meet with key donors, get them to know them better, and begin building those relationships.
Keep in mind that events can take a lot of time and work to plan and execute. There are so many details that go into a well-run event, and it can be overwhelming to host one, especially without the right resources.
10. Individual Donations
Of all donations made to nonprofits, the majority (or more than 71%) comes from individuals. In fact, according to Charity Navigator, individuals a collective $286 billion in 2017 alone.
Individual donors make gifts in a variety of ways, including direct mail, text giving, and online donation pages. Donation sizes range from a few dollars to several million, and donors can choose whether to make single one-time gifts or sign up for recurring donations. Regardless, individual contributions likely make up a significant portion of any nonprofit’s funding.
Nonprofit funding is one of the most important parts of running any charitable organization, as you simply would not be able to function without it. The money you pay to keep your lights on and your doors open, as well as the money used for mission-specific programming, all has to come from somewhere.
Remember, most nonprofits are funded by a combination of many, if not all, of the sources we’ve mentioned. And while it’s certainly a good idea to take a look at the big-picture make-up of your organization, we suggest you start by tackling one task at a time. Our suggestion? Incorporate direct mail into your nonprofit funding strategies.
If you’d like to learn more about strategic nonprofit funding and how to raise the support you need for your mission to thrive, be sure to check out our other educational resources below:
- Fundraising Letters: Writing Great Appeals (+ Templates!). Learn the secrets to writing an effective fundraising letter with this handy guide.
- Direct Mail for Nonprofits: The Ultimate Fundraising Guide. Curious why direct mail works? Want to find out the best practices? Click here for a helpful guide to direct mail.
- How to Ask for Donations: Tips for Smarter Fundraising. Understand everything you need to know about asking for money…from the right amount to the most inspiring ways to ask.