Nonprofit Revenue Streams to Diversify Proceeds
Wednesday, April 21, 2021
Although a nonprofit organization is primarily committed to serving a specific mission, the term nonprofit is often misleading. A nonprofit organization must, for example, still generate a profit if they hope to fulfil their goals. Like any business, having multiple streams of income can help save an organization if one source falls through. It is a measure undertaken by many to ensure long term success, and can help continue service, uninterrupted--no matter the influence of external factors on one source of funding.
The problem with limited revenue streams
The obvious problem with a lack of diversity in your income is that something may happen to your sole source of money–and then what? If a granting institution suddenly loses their own funding or decides to redirect the single grant you relied upon, your organization is left high and dry. When you count on one thing, the end of it can be catastrophic.
When your funding comes from many places, one can end with little disruption to your operations. Sure, you may need to replace it, but you’ve got money to cover operations for at least a little while. Diversified revenue streams can also help you in times of national tragedy or recession when people may be a little more reserved with their spending.
Types of nonprofit revenue
Nonprofits are not’ bringing in the bulk of their dollars by exchanging a product for your dollars, so they’ve got to be more creative with where the money comes from. Luckily, there are a lot of ways businesses of all types--even nonprofits--can make money.
Nonprofits receive a large portion of their revenue by acquiring grant money, which does not require repayment. Organizations apply for grants (which vary greatly in size, scope, and application process), and the money is given to them to use as either they or the grant instructs. Some grants come with requirements for how the money is spent, reporting on activities enabled by the grant, etc. Some do not, and are given freely with the expectation that the money will be used as described in the application.
The application process can vary, ranging from a simple form to a lengthy documentation process. Most require good storytelling and competent writing, as well as organizational characteristics that match what the granting institution is looking for.
Foundations also offer a variety of grants, and can be both public and private, corporate, and family. Organizations like the Gates Foundation are large and have the capacity to provide extensive grants. Others may be small and offer more limited (but still crucial) funding.
Fundraising and charitable contributions
A nonprofit organization gets a good bit of their money through fundraising that they conduct within the community. This can be through events, donor drives, recurring donations, etc. For every organization, it looks a little bit different, and can even vary from year to year as the organizational needs change.
Charitable contributions, which often happen as a result of fundraising efforts, are simply donations made to a nonprofit organization. These make up a large portion of a nonprofit’s revenue stream.
Nonprofits can and often do make money through the sale of service fees and through the sale of products. Although this type of income is subject to IRS regulations, it is helpful in the diversification of income streams in the nonprofit world. A great example of this is a nonprofit hospital that funds activity by charging for medical care. Girl Scouts sell cookies, which is the perfect example of this type of income stream. Other nonprofits might charge a fee for membership or sell merchandise to earn income.
Some nonprofits are able to form partnerships with corporate entities that result in funding. These are great because they’re typically reliable and can offer other networking benefits. In instances of partnerships, a company might agree to match all donations to an organization over a certain period of time. They may also result in corporate volunteers for a nonprofit.
Government and community funding
Many nonprofits receive government funding, usually in the form of a grant. Because government issued grants make up a large amount of the money available, they’re worth mentioning independently of other types of grants.
Frequently, other organizations operating within the community offer funding to nonprofits who qualify. This includes organizations like United Way.
Understanding the difference: recurring and episodic funding
While all funding is appreciated, not all funding is created equal. Some funding happens just once, while others are offered many times. Some can be renewed on a temporary basis and others require that certain metrics be met. While renewable funding is great because of its reliability, having a mix of the two is ideal.
Examples of renewable funding
Renewable funding is often the result of annual funds, and most of the time, this funding doesn’t come with restrictions. Likely, this type of funding accounts for a large portion of nonprofit income.
Renewable income can also be the result of monthly giving campaigns in which donors give a certain amount each month, or grants that are good for a few years. Endowment funds also fall into this category.
Examples of nonrenewable funding
Nonrenewable funding is much more unpredictable because it varies year to year. If you sell tshirts for a one time event, this income is obviously not in contention for the following year. Most fundraising efforts are considered nonrenewable.
While both types of funding should be planned for and accounted for in your nonprofit budget, renewable funding offers something of a source of stability.
How nonprofits can diversify
Knowing what types of funding exist is only half the battle. Being able to actually diversify your income in some way is another task entirely. Luckily, with a little preparation, you can do it!
- Look for donors. This may sound straightforward, but one of the best things you can do is look for new donors to increase your overall donor base and make your organization more stable. Decide who your audience is, how you might reach them, and what you’ll need to do to build a lasting relationship with them.
- Build relationships. Not only will this help you diversify your donor base, but it may land you a corporate partnership as well. Form alliances with businesses within your community without the expectation of financial support. Cultivate relationships with people who know people. Often, this results in good things for your nonprofit. If you want, you may even seek sponsorships or partnerships directly.
- Focus on grants. There are so many grants available, and you’re probably only applying for a very small part of them. Find an experienced grant writer who also knows how to research them, and you’ll open new doors for yourself. Apply often and thoroughly--and reapply if you can.
- Practice gratitude. If you’re only focused on making money, you’re probably in the wrong business. When you build intentional relationships with the individuals and businesses giving you money, they’re probably inclined to give more or tell their friends. Approach things from an authentic place and find ways to recognize the people who support your organization.
- Identify a sellable product. No matter your particular niche, there’s probably a product or service you can offer that both compliments your mission and brings in additional sources of income. Branded merchandise, tutoring services, or even renting part of your space when you aren’t using it are great (and relatively easy) examples of places you might make some money and diversify your income.
- Think outside the box. Nonprofits rarely suffer from a lack of creativity, and funding diversification is no exception. There may be an untapped donor base, wildly successful fundraiser, or grant writer you just haven’t thought of yet. Meet with staff and volunteers to identify easy (or even difficult) ways to make your organization soar with the resources and connections you already have.
An ideal funding situation and a final word
One or two income streams are great, but ten are even better. In a perfect world, you’ll have income coming in from lots of places. You may be getting dollars from monthly giving, grants, events, major gifts, sponsorships, etc.–all at the same time.
Plan for as many different sources of funding as you feel you can responsibly secure. Increase your goals for the next year, and future-proof your nonprofit for years of continued success.
Diversified funding can look a lot of different ways, depending on the exact setup of your organization. Don’t limit yourself by identifying three ways of generating income, but also be cautioned that each stream should be carefully thought out before you invest valuable time in it.
This sort of thing can feel tricky for nonprofits, because they're typically driven to spend money and hours in service of the mission. Diversifying income requires that some time is spent on more operational aspects of the nonprofit business. While this can feel strange, it is important to remember that a little bit of time on this type of operational work now results in more money down the road. More money down the road results in more and better services that will be around for a lot longer.