To accurately answer the question, how are nonprofits funded, you have to first understand that fundraising is not just asking for donations. This is one aspect of nonprofit development, but the overall fundraising landscape is quite varied. Nonprofits can fund their work with sponsorships, grants, individual giving, events, fee-for-service, and more.
This is good news because having multiple streams of revenue protects nonprofits in cases where one fundraising source falls through. To diversify your nonprofit’s revenue sources, it helps to know what opportunities are available. Here is an introductory overview of some of the main sources of revenue for modern nonprofits.
How Are Nonprofit Organizations Funded?
Sponsorships allow nonprofits to partner with other reputable organizations to receive funds and in-kind donations. Companies and organizations may sponsor a nonprofit as a general partnership or in conjunction with a campaign or event. The sponsor, though, will expect some sort of recognition or promotion of their brand too. Usually, this comes in the form of public thanks and displaying the sponsor’s logo. This is especially apparent at events like charity run/walks.
A nonprofit’s board can be a great resource for identifying potential sponsors. Ask board members to introduce your organization to their business colleagues and other contacts. You can also approach local businesses with a connection to your cause. For example, grocery stores and restaurants might be interested in sponsoring a nonprofit fighting hunger.
Grants are disbursements from governments or foundations to help nonprofit organization reach their goals. Often, grants will be restricted to a certain sector, location, or type of programming. For this reason, nonprofits must search for grants appropriate for their organization and apply for consideration. Grant applications are notoriously long and complex, so it’s important to plan ahead and choose your applications wisely.
How do nonprofits get funding from grants? As your nonprofit grows, you may find it worthwhile to hire someone to do the research and writing needed to pursue grants. With over $50 billion available from foundations and corporations, there are grants of all sizes for every charitable cause sector.
Individual donations are the bread and butter of most nonprofits, making up 72 percent of charitable contributions. These gifts can be very small, very large, or in between, and they come in several varieties.
- Online Giving – It has never been easier to give to a nonprofit organization. In the past, you would have to physically hand over your donation or send it through the mail. Now, anyone can simply enter their billing information and click the “Donate” button to support a cause.
- Monthly Giving – One advantage of the move to online giving has been the facilitation of painless recurring giving programs. Monthly giving is a smart way to create a sustainable stream of revenue at your nonprofit. Having reliable monthly income allows organizations to plan for the future and break out of the financial mindset of feast and famine. Monthly donors also have higher retention rates than the general giving community and ultimately give more in their donor lifetime.
- Peer-to-Peer Fundraising – With peer-to-peer you can grow your community and empower existing supporters to go above and beyond a modest donation. P2P fundraising allows supporters to create fundraising pages and reach out and appeal to their friends and family to give. Rather than making a single gift, which is limited to an individual’s financial means, the fundraiser leverages their social network to raise both funds and awareness. Every gift to a supporter’s fundraising page provides you with a new contact.
- Major Donors – Major donors are a special category of individual donors. These are supporters with the financial means to give more than most. Each nonprofit defines major gifts differently. For a small nonprofit, $250 might be a major gift, while a larger organization may define it as gifts of $5,000 or more. Whatever your nonprofit’s threshold for major gifts, this type of support requires ongoing cultivation and communication. The process of courting and retaining major donors is often called “Moves Management.”
Along with traditional fundraising campaigns, events are also a long-standing fixture in nonprofit development. Some of the most common types of fundraising events are charity run/walks, auctions, and galas. These events offer nonprofits an opportunity to engage and involve their community, all while raising funds through tickets, merchandise, and in-person donations.
In fact, fundraising events often combine several of the above revenue sources. For example, an organization’s end-of-year gala might sell tickets to their event, obtain sponsorships from local businesses, and solicit major gifts from key supporters. Be aware of expenses, though, which can quickly add up and eat away at your revenue. If your nonprofit has staff or a separate department devoted to events, your development team should work closely with them to optimize your fundraising results.
Funding a nonprofit is a big job. Fortunately, there are a variety of revenue sources and financial strategies to draw from. While individual giving and all its subcategories make up the bulk of charitable contributions, it is a good idea to draw income from multiple sources. This ensures that your organization isn’t fully reliant on any single funding source.
If you are handling all the fundraising for your small nonprofit, you’ll have to judge which sources are best suited to your organization. Start with the revenue sources that take advantage of skills or opportunities you already have. If you have experience in grant writing, that may be a good option. If your organization frequently hosts events, think of ways to incorporate fundraising. As your team grows, you can add staff members with the specialized skills each type of funding requires.