By nature, nonprofits rely on others in order to fund their work. While individual donations often provide the initial backbone for organizations, it's important to diversify funding streams as you grow.
In this two-part series, I'll take you through 11 types of revenue generation that nonprofits can harness, including how you can get started.
There are 11 basic income sources for nonprofit organizations. Deciding which sources to use as you build your organization is an important step, as most of your energy will be dedicated to developing the methods you initially select.
The basic income sources are
- Individual small donors
- In-kind contributions of products and services
- Special events
- Individual major donors
- Earned income
- Business donations
- Corporate giving programs
- Foundation grants or loans
- Government grants or loans
- Capital campaigns
- Planned gifts
As you establish a new nonprofit organization or build out the income sources for an existing nonprofit, you want to consider each of these types of potential revenue and decide which ones will work best for your organization.
Organizations in their first two or three years of operation will focus on developing individual small donors, securing in-kind donations, applying for one or two small grants, and holding fundraising events.
If you are a more established organization (three to five years), you may want to expand on those initial sources by establishing a grantseeking program, requesting donations from local and regional businesses, launching a major individual donor campaign, and developing an in-kind contributions program.
Let's explore each of these types of support. As you review this information, try to assess your potential success with a specific type of fundraising. I like to rate each potential source with a one to five rating; one being unlikely to succeed and five being very likely to succeed.
Individual Small Donors
Most individual small gifts come from founders, board members, volunteers, membership fees, or crowdsourcing. Building a strong individual giving base is critical for the success of any nonprofit, especially small grassroots organizations.
Whether you launch a membership program or solicit individual donations, the first step is to identify the kind of technology you want to use. Research the different technology options that will make the donation process simple for individuals and easy for your organization to track. This is a great job for a volunteer.
A membership program is more reliable in terms of ongoing support. If you are developing a membership program, your next step is to answer a few basic questions:
- Do we reference members in our bylaws?
- What role will members play in our organization?
- What types of benefits are we able to provide members?
- Why would an individual want to join our organization?
- How will members contribute to the organization's mission?
A well-developed in-kind contribution program can greatly strengthen the overall financial health of your organization. In-kind contributions are anything your organization receives — whether products, services, or volunteer labor — that helps maintain or grow the organization without any, or with very little, cash outlay. Almost every nonprofit in existence receives in-kind support. However, it is well known that over 90 percent of the nonprofits that benefit from in-kind support do not document these contributions. Volunteer labor alone can be of great value. The estimated value of volunteer labor for 2021 was $29.95 per hour. It's likely that you could document hundreds of hours of volunteer time for your organization over the past year, if not more.
In-kind donations can be used to leverage grants from the private sector, as well as match government grants, so their value is considerably more than it appears on the surface. And, showing in-kind contributions in your budget boosts your bottom-line figure, which may enhance your eligibility for larger funding opportunities. In addition, demonstrating this type of support to your business community can be the springboard for successful local or regional business solicitations of cash support.
Pro bono services, also known as skills-based volunteering, is a growing trend in corporate America. More companies are merging these professional services into their volunteer programs as another way to engage employees while investing in their communities. This type of volunteering goes beyond traditional days of service, in which a large group of employees joins a nonprofit for a few hours or a full day to clean up a park or paint a building. Instead, nonprofits can get help with pressing needs from experts in their field. And a great side benefit, which has been documented, is that if a business or company provides pro bono services or skills-based volunteers, then the likelihood of securing a cash donation from that company in the future goes way up.
Where to begin? Start by establishing policies and procedures for accepting in-kind contributions. Until you have those in place, your program is loosely documented and probably won't withstand scrutiny. The National Council of Nonprofits offers guidance on developing gift acceptance policies.
Once those policies are in place, and you have adopted procedures for tracking volunteer time as well as accepting and valuing gifts of products and services, then you can determine where you may already be getting gifts that aren't currently documented.
Start by looking at any discounts on rent, printing costs, and services such as internet, CPA, legal, and so on. Document those discounts or donations and add that value to your budget.
Next, take a look at your budget and determine where you might be able to cut your costs by either a donation of or a discount on the service. Identify a volunteer or a board member willing to pursue these discounts or donations. Make this their "job" for the organization. Let this person own the project, but be sure to document their time because it is an important in-kind donation as well.
As with all nonprofit finances, there are rules established by the IRS to help guide what you can and cannot consider an in-kind contribution. Learn as much as you can about the proper way to document and report in-kind contributions.
Holding an annual fundraising event can be a lot of work, but it can also provide you with excellent recognition within your community, as well as bring in those ever-so-helpful unrestricted general operating dollars.
Remember this event will probably happen every year, so it has to be something that is both sustainable and offers room for growth. Think about your market: Are you trying to bring in as many people as possible, or are you targeting a set of major donors? Will the event be online (virtual), face-to-face, or both? Is it a learning conference? Or is it a gala of some sort? Is your goal to raise significant sums of money for the organization, or is it to celebrate who you are and your accomplishments? There are a lot of questions that you and your board of directors need to discuss before you move forward.
To me, the most important thing to recognize when you decide to hold an event is whether it is sustainable to hold it year after year. Try to start small and let the event grow organically. This is why holding an event is a great way for small nonprofits to begin raising funds. Your financial goal can be relatively small the first few years, but it can grow over time as the audience for your event also grows.
Individual Major Donors
Raising funds from major donors should be an integral part of any nonprofit's fundraising strategy as approximately 88 percent of nonprofit funds come from just the top 12 percent of donors. Major donors typically start as an individual small to medium-sized donor, but as they recognize the good work your organization is doing, they often invest more. For startup organizations, it is smart to identify a small cadre of potential major donors ($1,000 a year or more) — which will likely include some of your board members — and hold a launch party for the founding of a major donor program. Give the program a cool name like Guardians of the North. (That's a name we adopted for a conservation program in Alaska.) Major donors should be cultivated, so you want to give each person special attention. For a young organization, this is usually a job undertaken by board members or the executive director. As the major donors program grows, you may want to dedicate a staff person to this important task.
It is important to establish this program early on in your organization's life cycle. When I started a major donors program way back in the late 70s, I began with $500 donations and slowly moved the donation amount up until we were looking at donations of $5,000 or $10,000 a year. However, these days, large organizations often receive gifts of $100,000 or more from their major donors.
Earned income ventures launched by a nonprofit can now take several forms: as a complimentary venture, such as a gift shop at a museum, or as a social enterprise tied directly to your mission, such as employing women who have been incarcerated to make jewelry. The beauty of earned income is that it taps into the entrepreneurial spirit that many of us have.
Make sure you understand the rules around earned income before you take your organization down this path. Wild Apricot says, "Unlike their for-profit peers, nonprofits have different regulations and rules to tiptoe around while making money. To ensure they keep their 501(c)(3) status, these revenue sources should align with the organization's mission. This means they are classified as related income. Revenue not tied directly back to the mission falls into the unrelated income category, which has IRS rules and implications for an organization."
It is very important to understand the IRS rules around what they term unrelated business income. You can learn more at the IRS website. You'll also need to ensure that you develop a business plan, which your regional Small Business Development Center (SBDC) can help you with, and consider that any venture of this kind requires substantial staff support.
Read Part Two of this two-part series.
- Enroll in TechSoup Courses' series Fundraising for Nonprofits.
- See 2023 Trends to Help Your Nonprofit Raise More.
- Discover How to Leverage E-Commerce to Raise Funds.
- Learn Everything You Need to Know About Hybrid and Virtual Events.
- See a webinar on How to Grow and Engage Your Donors, Members, and Volunteers.
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