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Navigating the Complex Nonprofit Revenue Landscape

Posted by Donald Summers on Jun 5, 2019 4:09:53 PM

businessperson navigating Money-Shaped mazeIn my previous posts on this blog, I have laid out the critical success factors for board members wishing to lead nonprofits that go big and truly deliver substantial social impact. It takes a high-performing team; a culture of courage, risk tolerance, and grit; and a world-class business plan executedwith focus and discipline. It also takes lots and lots of money.

But while I have spent a lot of time in previous posts describing how nonprofits are very similar to for-profit businesses, when it comes to harnessing capital and growing revenue, the nonprofit sector faces unique complexity. Whereas for-profit businesses have fairly clear models on how to raise capital and earn money, a nonprofit has multiple capital sources and six different revenue domains, each requiring discrete, sophisticated strategy. Here is a summary of each domain, illustrated with both “low performance” and “high performance” examples to help you examine your own strategies with a critical eye.  

  1. Individuals: There’s more than $400 billion in this space. Successful organizations prioritize personal interactions with their financial supporters. They set specific, accountable goals for high numbers of one-on-one, face-to-face meetings with current and prospective supporters to foster durable, honest, productive relationships. In this age of digital overload, it’s more important than ever to focus on people and faces, not screens.

High-Performance Strategies:

  • Soliciting donations via one-on-one, face-to-face meetings. Events are for educating and thanking donors, not for raising money.
  • Providing fundraising staff and volunteers with robust, concise plans that show exactly how donor money will be used to create specific social gains.
  • Investing heavily in thanking supporters and showing them how their money was used to help sustain the organization’s effectiveness in advancing its mission.
  • Monitoring key metrics that drive continuous improvement
  • Using wealth screening tools to find the highest-potential investors.
  • Using the bulk of the fundraising budget for in-person meetings with financial supporters.  

Low-Performance Strategies:

  • Relying on high-cost, low-return transactional events like auctions or galas as primary fundraising vehicles. Importantly, note that these events have many important other functions: they are great for investor identification, cultivation, and stewardship (but not for solicitation); branding; community engagement, culture building, etc. Read “What Events Are For” for more information.
  • Prioritizing social media appeals, “Big Gift” campaigns, fundraising letters, brochures, newsletters, digital communication, and other broad-based marketing efforts that offer low conversion rates and message fatigue.

  1. Corporations: At about $20 billion annually, corporate funding is the smallest source of revenue for nonprofits, but companies are made up of people, so winning a corporate partnership is also a gateway to the much larger pool of individual funding. However, compared to individual donations, winning and sustaining productive corporate partnerships demands a very different set of approaches. A nonprofit must be able to do at least one of three things for corporate funding prospects: 1) provide a significant boost to their marketing or brand; 2) offer specific ways to make their employees measurably happier; or 3) offer a promising solution for a real business problem the company is having.

High-Performance Strategies:

  • Showing corporations how partnership with your nonprofit can solve their business problems, add marketing and brand value, or create a broad platform for meaningful employee engagement.
  • Emphasizing personal relationship building with those in corporate leadership.

Low-Performance Strategies:

  • Approaching corporate foundations with a “need.”
  • Soliciting one-time sponsorships or small grants.
  • Limiting interaction to mid-level managers and not core decision makers.

  1. Private Foundations: While there is about $60 billion in the private foundation world, this money is the most expensive to attract and the hardest to sustain. Foundation grants should fund your innovative projects or new, data-driven initiatives. When the possibility exists to meet with a foundation decision maker, take it, and then pursue a careful strategy of fostering a strong individual relationship. Otherwise, outsource grant research and writing to proven professionals.

High-Performance Strategies:

  • Relying on experienced, proven grant writers to research and write your grants (expect to pay at least $125/hour). In-house grant writers make sense only when they are bringing in at least $1 million in annual revenue per person.
  • Having all grant proposals relate to projects that fit the organization’s strategic plan or framework. Never “trim to fit” your solicitations. Those can lead to mission drift, fugitive programs, or even dishonest reporting.

Low-Performance Strategies:

  • Starting a new program or project because there is grant money to support it.
  • Modifying or fudging your current program description or program outcomes to fit the grant requirements.
  • Managing grants in-house, leaving no time to try other strategies.

  1. Public Agencies: Local, state, and federal agencies provide hundreds of billions in grants to nonprofits every year, and the nature of the funding opportunity varies greatly by organizational size, type, and location. Over the past decades, governments are increasingly outsourcing their work to nonprofits, especially in the health and human services fields. At the same time, budget pressures have led to cut-backs for fields like arts and education. Despite the considerable variance and complexity in the public funding landscape, public agencies generally advertise where and when they are willing to grant funding. So just like private foundations, it’s critical to get the advice of seasoned grant professionals. Note that, just like the foundation space, you should be looking for any and all possibilities to establish and build personal relationships with decision makers.

High-Performance Strategies:

  • Using experts to review the federal grant register and target new grant opportunities. While the largest nonprofits have dedicated teams in Washington DC, smaller groups can discover large pools of funding with the right help)
  • Having research target the appropriate state agencies and then ensuring that the decision makers at each receive personal attention and careful relationship management.
  • Going beyond the reporting requirements and sending short stories and concise, compelling statistics to agency leaders that show what great good was created with their agency’s funding.
  • Soliciting grant funding with full understanding that it will need substantial levels of additional funding to cover the full cost of the project. (Public grants rarely pay for the full cost of delivering grant objectives.)

Low-Performance Strategies:

  • Having executive staff spends significant amount of time on grant proposals.
  • Pursuing public agency grants without the means to supplement the funding with other revenue.
  • “Trimming programs to fit,” e.g., customizing program outcomes based on what grants are looking to fund.
  • Opportunistically pursuing multiple disconnected grant-funded initiatives without an integrated strategy.

  1. Earned Revenue: Many are surprised to learn that approximately half of the nonprofit sector’s annual $1.8 trillion in revenue comes from fee-for-service activity, just like any other type of business. The opportunities are, of course, highly dependent on organizational type — health care and human services organizations might access large federal or state contracts for services. But there are many other flavors of earned income, limited only by the board’s and executive team’s entrepreneurial imagination. In sum, remember that a nonprofit is, a very complicated type of business with far more opportunity for earned revenue than most people realize.

High-Performance Strategies:

  • Launching and scaling a high-margin for-profit subsidiary.
  • Licensing intellectual property or franchising.
  • Purchasing real estate and sub-leasing to for-profit tenants.

Low-Performance Strategies:

  • Managing low-margin subsidiary businesses (restaurants, thrift shops, etc.)
  • Failing to charge people who can afford to pay because “we are a nonprofit.”
  1. Impact Capital. Hundreds of billions of dollars are flowing into the “impact” space. Some estimates even put that number into the trillions of dollars. Broadly defined, impact capital can be any asset class — from debt, to private equity, to fixed income vehicles —that’s looking for a measurable social return in addition to a financial one (see The Global Impact Investing Network website for an excellent overview). While few nonprofits can provide truly commercial rates of return to compete for all these dollars, there are many philanthropically minded investors who will accommodate sub-market rates of return or take on higher levels of risk in return for social impact. Most nonprofits can access these investors if they have an earned income stream.

High-Performance Strategies:

  • Using peer-to-peer loans via platforms like Semble.
  • Soliciting Program-Related Investments (PRIs) from private foundations.
  • Securing capital from family offices or institutional investors.
  • Finding social impact bonds or other pay-for-success initiatives

Low-Performance Strategies:

  • Making vague promises around social and financial returns. An organization must pursue and win adequate capital and perform on specific promises made around social and financial returns. Ineffective strategies or executions fail outright so suboptimal strategy is very easy to spot — it doesn’t work.

In closing, a simple set of questions will help guide board members in understanding if their executive teams are capturing all possible revenue:

  • How many of these domains can we access?
  • Do we have the strategic and operational expertise to access and capture these funds?
  • Do we have the right team to execute?
  • How will we monitor our execution?

Board members need the right answers to these questions to oversee an organization that succeeds, not just survives.

Editor’s Note:

BoardSource’s Measuring Fundraising Effectiveness: Why Cost of Fundraising Isn’t Enough provides a framework built around emphasizing how important it is to invest in strong and sustainable fundraising programs. Learn more.






Topics: Fundraising

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