Have you ever wondered why some nonprofits grow successfully while others struggle to raise enough money to keep their doors open?
It can be frustrating — you’re starting a nonprofit (or growing one) to try to make a difference and help others, but you just can’t seem to raise enough money to grow or keep things going. You see other nonprofit organizations thriving and wonder, what am I doing wrong?
Don’t worry. You’re not a lone in asking these questions. And I’ve got your back!
In this article, we’ll answer two main questions:
1. How are successful nonprofits raising money?
2. What are the different ways nonprofits can raise money?
So let’s dive in and take a look at some of the common ways successful nonprofits fundraise. We’ll also examine traits that some of the largest nonprofits with big budgets have in common — whether they’ve grown to scale through nonprofit grants, government grants or contracts, corporate sponsorships, earned income, or something else.
How successful Nonprofits are fundraising
Let’s talk about about one thing successful nonprofits have in common when it comes to fundraising: They have diverse funding sources.
BUT THERE’S AN EXCEPTION.
Having diverse funding streams is a good practice for startup nonprofits and smaller or medium-sized organizations. When you’re just starting out, diversification is a smart idea.
Here’s that exception I mentioned: Once you get a bit larger, it turns out diversification may not be as critical.
A fascinating study by the Bridgespan Group looked at the fundraising habits of 144 very large organizations — all with at least $50 Million in ANNUAL revenue. What the study found was that these very large organizations — we’re talking Habitat for Humanity, Make-A-Wish Foundation, and more — actually focused on a single revenue stream to achieve their massive size.
Of course, “being big” is not and should not be the main goal of a nonprofit or any social impact effort. We know the ultimate goal, of course, should be to make a positive change and solve a problem or address a need, and then move on to solve another problem or disband because, hey, you accomplished what you set out to do. Sometimes, being big is a part of accomplishing that goal. Sometimes, you can be small and get it done.
Now let’s look at those diverse fundraising strategies successful nonprofits are using to raise money.
5 ways Nonprofits fundraise
To recap: New, small, and medium sized organizations find a lot of success by diversifying their funding base — fundraising through not just one, but multiple methods (which we cover below!).
I also want to make a note of two important details here:
1. No matter which of these methods, or others, you undertake, first – you should train and get help from your Nonprofit’s Board of Directors to support fundraising.
2. Secondly, you will most likely need to obtain a Charitable Solicitation License from your state if you’re in the United States. That’s because 40 out of 50 states require this before you can do any meaningful fundraising.
Funding Source #1: Individual Donations
These make up 70-75% of annual charitable donations in the United States each year.
Individual donations is just what it sounds like — a generous individual gifts money to your nonprofit (and, assuming your nonprofit is tax exempt, gets a tax deduction from the gift, too). Donations can range from one-time small gifts (think of your typical $20 donation received through a nonprofit website; though the definition of “small” is subjective), to major gifts (donations considered “large” by the nonprofit; again, subjective), to recurring donations (think like a monthly subscription).
Funding Source #2: Corporate Support
Corporate support constitute about 8-9% of charitable donations annually.
Corporate contributions include everything from corporate foundation grants to sponsorships, volunteer grants, employee donation matching, to in-kind gifts.
Funding Source #3: Grants
Despite a popular misconception that nonprofit grants are widespread, foundation grants really only make up about 16% of charitable donations each year.
Grants might come from private or family foundations, community foundations, or the government.
Funding Source #4: Fundraising Events
Fundraising events can be a good source of funding for new start-up nonprofits, though they can require a significant amount of time, planning, and sometimes up front money to make the event a success. Some of the other funding sources described here come through events (such as some corporate sponsorships or individual donations). Events may also bring in revenue through event ticket sales.
Funding Source #5: Earned Income or Program Fees
Sometimes also referred to as “fees for service” or “program fees”, earned income strategies bring in an impressive 45-50% of nonprofit revenue.
Note I didn’t say charitable donations – earned income does not count as a tax deductible donation, because it is revenue earned through the sale of goods or services that align with the nonprofit’s public-serving mission.
It’s important that your earned income methods directly further your nonprofit’s charitable mission — otherwise, you might get penalized by the IRS for having too much Unrelated Business Income.
Nonprofit Fundraising growth long-term
How can plan a fundraising strategy that will help your organization expand over the long-term?
It comes down to two things:
1. Finding your fundraising “fit”
Fundraising is not one size fits all. For some organizations, earned income may be a more logical fit to focus on; for others, individual donations, and for others, government contracts or grants. Here are a few examples:
Government Funding: If your organization fulfills a big need that a city or county government might otherwise be responsible for fulfilling, you may have success convincing your local government to provide funding to support that effort. Examples might include providing housing for families experiencing homelessness, services to inmates leaving prison, or school nutrition programs.
Individual Donations: If you have a compelling story, strong brand, and clear, easy to understand mission, you may have success making individual donations a large part of your cause’s support. Organizations that have become very large with the help of small and medium donations from individuals tend to tackle causes that have simple, emotional messages and missions. Examples might include ensuring no child goes hungry and that animals are treated humanely.
Earned Income: If your organization has a logical way to sell goods or services that aligns with your mission, earned income might be a good route for you. Examples might include selling meals at a pay what you can nonprofit restaurant, providing consulting to other charities, or running a thrift shop or other store. As I mentioned earlier, you just have to be careful that whatever way you generate earned income it aligns with and helps accomplish some part of your overall mission – or else you could be subjected to paying taxes for “unrelated business income”.
2. Knowing your Nonprofit’s core competency
What do you do best that nobody else does as well as you and how can you use that to generate revenue? Are you great at mobilizing volunteers? Do you create emotionally-moving stories and content? Do you have access to an affordable storefront and items you might sell to fund your mission?
Combining the fundraising strategy that makes the most sense for your particular mission with the things you are most skilled at as an organization will ensure you can raise money for your cause sustainably and grow big enough to make widespread impact.
Many ways to fundraise
You can see there are a lot of different ways to raise money to run and grow a nonprofit organization.
Whatever stage you’re at, I hope this was helpful! Looking for even more insights into fundraising and growing your social impact? Check out our newsletter by subscribing below:
