Key Nonprofit Funding Sources & Which Best Fits Your Nonprofit
By: Sindre Carlsen
This past year, the COVID-19 pandemic has forced many people to turn to nonprofits for much-needed help. With little notice, nonprofits saw their responsibilities skyrocket while revenue streams took great hits. Income from government contracts dropped and fundraising events were cancelled. Consequently, many nonprofits have seen their operations greatly reduced if not terminated. This situation highlights how important it is for nonprofits to develop effective and robust funding models. As vaccines are being rolled out across the United States, it is worth reevaluating what funding sources are available and which are worth pursuing depending on your nonprofit organization.
This article covers 3 common funding sources, highlighting the pros and cons of each to help determine which may be best suited to different types of nonprofit organizations.
Individual Donations / Crowdfunding
Of all the revenue sources that nonprofits pursue, individual donations make up the biggest share, on average 71% of a nonprofit’s total income. Compared to other large funding sources for nonprofits, individual donations offer the most freedom. While grants are often earmarked, individual donations give a nonprofit freedom to invest in what they believe will best forward their mission, unrestricted by guidelines set by grant-giving institutions. Due to the sheer size and flexibility of individual donations, most nonprofits benefit from making this revenue source a central focus of their funding model.
Individual donations as a funding source can take many forms, both in terms of acquisition and donor profile.
Depending on the focus of existing marketing efforts, nonprofits can get individual donations in many ways, ranging from online to offline fundraising. Common online fundraising avenues include website campaigns and email or social media crowdfunding, which can facilitate recurring donations. However, offline fundraising should not be disregarded; older donors might still prefer direct mail, and door-to-door can be effective if the nonprofit’s services directly serve or concern the people that are being approached. However, in-person offline fundraising models can be pricey and time-consuming; other offline fundraising strategies like phone solicitations and fundraising events may be preferred.
Understanding your nonprofit’s donor profile is also important to successfully gathering individual donations. For example, a nonprofit can have a majority grassroots donor profile or gather most of its individual donations from a few bigger donors. Major donors can be hard to find, but they are beneficial as a recurring large cash infusion can ease budget pressure and requirements, allowing nonprofit to focus on providing services rather than running fundraising campaigns. However, major donors cannot replace a large donor pool as there is safety in having the majority of income and donations come from a diverse array of donors.
Every nonprofit can benefit from individual donations. As a primary funding source, individual donations are particularly well suited to organizations with big marketing budgets and capacity, as it is a time-consuming funding source. Additionally, nonprofits with widespread, general causes might find higher success in individual donation fundraising as they can appeal to larger segments of their local community.
Grants
Grants can provide nonprofit organizations with stable, large sources of funding, leaving nonprofits more time and capacity to focus on their mission and services. Nonprofit organizations can apply for grants from local, state; and federal government agencies, as well as private and public foundations. This section outlines the pros and cons of each grant source.
Government grants are an important revenue source for nonprofits, with about a third of the nonprofit sector’s total revenue coming from written agreements with governments. can be difficult to obtain but can provide large funding amounts. Government grants tend to be more flexible in how they can be spent than privately-funded grants. Nonprofits can use government grant money to fund not only services, but also operative and administrative costs. Last but not least, government grants can give credibility to a nonprofit, which in turn can help bring in funding from other sources. Grants.gov is used by federal agencies to post direct federal grant opportunities.
Foundation grants benefit from personal attention, often being awarded after a long relationship-building process, particularly in the case of family foundations. By offering nonprofits the ability to build a relationship with grant givers, long-term funding can become easier to obtain. However, popular foundations are often flooded with proposals, and acquiring a grant from a large foundation can often take years of applications and follow-ups.
Corporate grants, similarly to foundation grants, often feature larger donations and long-term relationships between the giving corporation and the receiving nonprofit. However, corporate grants can sometimes come with the stigma attached to the grant giver. Therefore, it is important for a nonprofit to have quality controls in place to ensure that the grant giver and the nonprofit’s values are aligned.
Overarchingly, there are a number of things that nonprofits should consider before making grants a significant part of their funding model. Writing grant proposals can be a time-consuming process; nonprofits should consider if they can afford to invest the time and resources needed to write grant-winning applications. Additionally, grants often come with restrictions and requirements on how funds can be spent within the nonprofit; nonprofits should consider what they’d like to achieve with additional funding, what type of expenses they face, and whether grant funding corresponds to their needs.
Corporate Sponsorships
In an increasingly socially-minded society, nearly every large corporation has started to place more emphasis on Corporate Social Responsibility (CSR), and corporate sponsorships are increasingly becoming a great funding source for nonprofit organizations. Corporations benefit from partnering with nonprofits by projecting themselves as socially responsible. In contrast to corporate grants, corporate sponsorships are often seen as a valuable addition to a corporation’s marketing portfolio and the corporation providing the sponsorship would likely expect recognition and advertisement from the nonprofit. If your nonprofit is able to find a corporate organization with which your values align, corporate sponsorships can be a valuable funding source.
Corporate sponsorships can take many forms such as: no-strings-attached donations, event sponsorship, marketing support, pro-bono expertise/services, individual employee donation matching , in-kind gifts, and more. All of these forms of philanthropic support can help increase a nonprofit’s impact; in exchange it is common for corporate sponsors to ask for various favors that aim to tie the corporate sponsor’s name to the nonprofit organization’s work and cause. These asks can include requests for the corporation’s logo to be displayed at events, on the nonprofit’s websites, and in social media posts. Due to the visible and publicity-driven nature of corporate sponsorships as a funding source, it is important for nonprofits to have a thorough understanding of the values and work of the corporate organization they are looking to enter a partnership with. For more recommendations on corporate sponsorship best practices, we recommend “Best-practices Guide to Securing Corporate Support” by Madeleine Monson-Rosen and MissionBox.
Other Funding Sources
This article provided an overview of the three most popular funding sources for nonprofits: individual donations, grants, and, increasingly, corporate sponsorships. Other common nonprofit funding sources are: membership fees, selling goods and services, and in-kind, non-monetary donations. For your next nonprofit funding read, we recommend “Ten Nonprofit Funding Models” by William Landes Foster, Peter Kim, & Barbara Christiansen, Stanford Social Innovation Review.
