Diversify Your Funding Sources

Cash revenue streams for nonprofit organizations include, among others:

  • Individuals (this represents 75% of charitable giving in the U.S.)

  • Foundation and corporate grants

  • Government grants (federal, state, and local)

  • Community/civic groups

  • Churches

  • United Way

  • Fundraising events

  • Fees for service (from clients)

  • Government contracts

  • Insurance reimbursement (for healthcare services)

  • Membership fees

Just because your organization has gotten by for many years with limited revenue streams, or even a limited number of donors, does not mean it will continue forever.

Consider the example of “Happy Days Center for the Disabled,” a fictitious nonprofit organization similar to countless real nonprofit organizations.  Happy Days has been in business for 30 years and has received most of its support from a state grant.  Unfortunately, the state cut its budget in half last year, and now Happy Days must also cut its budget in half since it has no other source of revenue or fundraising.  Had the organization had the foresight to do fundraising many years ago while times were better, there might be funding from any number of possible sources, and cutting programs might not be an issue right now.

We received a phone call awhile back from an organization in Dallas with a $9 million annual budget, and $8 million of the budget had been provided annually from one very generous donor for many years.  And that donor had just given the organization one year’s notice that they were completely stopping their funding.  Not long ago there was a local newspaper story about a small nonprofit organization in Dallas that had been totally funded by one donor for several years, and that donor had just pulled their funding without advance notice.

You have to constantly be seeking new revenue streams in case other types of funding dry up.  You can’t just rest on your laurels.

An important source of potential new revenues for many organizations is the people you serve – your clients.  For a long time many nonprofit organizations proudly proclaimed that their services were provided free of charge to everyone who qualified to receive services.  But the world has changed and other revenue streams have been reduced, and everyone receiving services should pay what they can possibly afford – even as little as $1 per service if that’s all they can pay, as is done at one local nonprofit organization.  If your organization charges a fee, it should be less than a for-profit business would charge for the same or a similar service.

Rather than charge a fee, some nonprofits have “voluntary” donations, meaning you suggest that a client can help you provide services by giving a donation.  One way to do this is to post a fee schedule that provides information such as how much your service actually costs to provide, and inviting users to donate an amount of their choosing.  There is some evidence that people, even when financially challenged, like to donate something rather than just receive a “handout.”  Whether you invite donations from clients will depend greatly on the nature of your organization and the service you provide.  A soup kitchen that provides food to the homeless is not a very appropriate place to ask for donations.

Murray Covens