Nonprofit Funding: How to Maximize Revenue Streams
There are many different types of nonprofit funding, each with its own advantages and disadvantages. In order to succeed, it is important to maximize revenue streams by diversifying your funding sources. This will help you weather any bumps in the road and continue to support your mission.
What is nonprofit funding?
Nonprofit funding is financial support given to nonprofit organizations for the purpose of advancing their mission and goals. It refers to the financial support given by foundations, corporations, individuals, and government agencies to nonprofit organizations for the purpose of supporting their programs or initiatives.
Nonprofit funding typically comes from foundations, corporations, government agencies, individuals or families. Grantmakers provide grants with specific stipulations on how they want their donations distributed. Nonprofit organizations often have to submit grant proposals in order to receive funds from these entities. Government funding sources may also provide awards depending on the program or initiative they wish to support.
Nonprofit organizations typically sustain their programs through a mix of private contributions (such as donations), fundraising activities and events, fees charged for certain services (such as membership), and sales of goods/items. Many nonprofits also understand that they must diversify their funding sources in order to boost their financial stability. Grants are one form of nonprofit funding that can be donated by foundations, corporations, government agencies or individuals with specific stipulations about how it should be used. Additionally there are many federal grant programs available through Grants.gov that nonprofits can apply for in order to receive up to 30% of projected revenues from awarded grants in 2021 according to The 2021 State of Grantseeking™ Survey report .
For most non-profit organizations, there is a need to come up with new ways of raising revenue every year since they require the financial resources to fulfill their mission and support their cause. Even though the organizations might use different themes year in year out, and there might be new players willing to offer donations, the sources of funding are typically similar.
Top 4 Revenue Streams for Nonprofits
1. Fees for Service
In most scenarios, one might be quick to think about donations every time there is mention of nonprofit organizations. However, in the real sense, there is a certain amount of income that comes from the fees charged for services offered or the sale of products. Statistics show that the amount of funding collected from services account for about 48 percent of the total revenue for the nonprofit organizations.
2. Charitable Contributions
Even though nonprofits receive nonprofit funding from diverse sources, the individual charitable contributions amount for the highest percentage of the funding. Statistics shown in Giving USA report shows that in 2017, the total charitable contributions made in the United States was roughly $410.02 billion, whereby 71 percent of this amount was from individual contributors.
3. Corporate Philanthropy
In recent times, corporate philanthropy has become a crucial aspect of nonprofit organizations. As such, these organizations are continuously making corporate partnerships that help in cause-related marketing and sponsorships. There are some companies that encourage employees to make charitable donations and partnering with such companies, nonprofit organizations are set to benefit.
4. Government Grants
Most nonprofit organizations get funding from all levels of government in the form of grants as long as their cause is genuine. This includes getting easy access to public media, higher education, and public education. Also, the programs provided by these organizations receive government funding especially those related to healthcare and human service.
Breakdown of Nonprofit Revenue Streams
1. Individual Donations
Individual donations are one of the most important sources of funding for nonprofits. Individuals give more than $309.66 billion each year, making them a vital component to any nonprofit’s funding model. Individual donations can come in a variety of forms, including one-time and recurring gifts, online and offline payments, event fundraising activities, planned giving programs and tributes. Additionally, it is important to keep in mind that individual donors may only donate small amounts each year but these contributions can add up quickly with every new donor contributing towards your cause. Furthermore, it is essential for organizations with large marketing budgets or those with causes that have wide appeal (e.g., cancer) to focus on individual donors as they are likely to be more responsive than other groups of potential donors who may not understand the full impact their donations will have on your organization’s mission or programs..
2. Company Donations
1. Identify the Cause: First, identify the cause that your company wants to support. It is important to find a nonprofit that shares the same values as your organization, as this will encourage long-term giving.
2. Research Potential Donors: Research potential corporate donors who could be willing to make a financial contribution towards your cause. Look for companies that truly care about the issue and whose leadership and customers will be motivated by it.
3. Make The Ask: Once you have identified potential donors, it is time to make an ask for their support in order to generate revenue for your nonprofit organization or charity event/campaign..
4 .Set Goals And Expectations : Before making any kind of fundraising request or accepting donations from corporations , set clear goals and expectations with them so both parties understand what is being asked of each other . This helps ensure success on both sides .
3. Fees for Services
The fees for services is the money charged by a nonprofit to cover the cost of providing its services or goods.
Depending on what the organization offers, there are many potential revenue streams for nonprofits. These can include individual donations, grants, corporate sponsorships, membership fees, selling goods and services at a sliding scale rate depending on income level of recipients, and in-kind donations such as donated products or volunteer hours.
4. Membership Fees
Membership fees are the fees paid by subscribers in order to receive benefits from an organization.
Membership fees can be a reliable source of regular revenue for nonprofit organizations. They can be used to fund programs and services, as well as provide members with discounts on products and services. Additionally, membership dues may be tax-deductible for the member depending on their country’s tax laws. Using a membership management software can help make tracking member dues and sending renewal reminders easier for nonprofit organizations that have a membership model in place.
5. Crowdfunding
Crowdfunding is a form of fundraising where individuals can donate small amounts of money to a cause or project. It is usually used to raise large sums of money for specific purposes, such as funding an organization’s projects or covering unexpected expenses. Crowdfunding platforms such as Kickstarter and GoFundMe make it easy for organizations to create online campaigns with the goal of reaching a broader audience than their direct community.
Crowdfunding can be an effective tool for nonprofits looking to raise funds quickly. By creating an appealing story, outlining the need clearly, and setting a concrete goal, organizations can reach out to more people while also building awareness around their cause. Additionally, since many activities that were previously done in person are now moving online due to technology advancements like COVID-19 pandemic in 2020 , it makes it easier for people from all over the world to donate without having physical face-to-face interactions with each other.
6. In-Kind Donations
In-kind donations are non-monetary donations of goods or services. They can include items such as food, clothing, medicine, and other necessities for a program or project. Corporations and foundations often offer in-kind grants as a way to provide assistance without giving money.
In-kind donations can be an excellent revenue stream for nonprofits because they provide an opportunity for organizations to receive goods that they may not have been able to afford otherwise. These types of donations can also help increase awareness about a cause or organization by providing items that could be auctioned off at fundraising events. Additionally, corporations benefit from in-kind donations because they give them opportunities for publicity as well as tax write offs if applicable in their country’s laws.
7. Beneficiaries
The benefits of having a beneficiary program for nonprofits include:
- Increased financial support: Through building long-term relationships with individual beneficiaries, nonprofits can receive supplemental support that helps cover their expenses.
- Encouraging philanthropic giving: Beneficiaries may choose to leave some or all of their assets to your organization as appreciation for the good work you have done for them. This encourages other donors to give more generously as well.
- Building goodwill among supporters: By showing gratitude towards those who have been helped by your organization, you build goodwill among your supporters which can lead to increased donations in the long run.
8. Cause Marketing
Cause marketing is a partnership between a nonprofit and a for-profit business for mutual benefit. The company promises to donate a percentage of every sale to the nonprofit, while the nonprofit receives financial support.
Cause marketing provides an effective way for nonprofits to gain financial support while also raising awareness about their causes. By partnering with product-based businesses, nonprofits can reach new audiences and raise funds quickly without having to spend large amounts of money on advertising campaigns or fundraising efforts. Additionally, cause marketing campaigns provide companies with good public standing and increased sales which makes it a win-win situation for both parties involved.
9. Peer-to-Peer Fundraising
Peer-to-peer fundraising is a type of fundraising where individuals from a community come together to raise money for a nonprofit cause. Participants typically solicit donations from friends, family members, and other supporters, who then donate directly to the nonprofit.
Peer-to-peer fundraising can be beneficial for nonprofits because it allows them to reach larger audiences with fewer resources. It also provides donors with an opportunity to get involved in the mission of a nonprofit while building relationships with likeminded people in their community. Furthermore, it helps foster connections between individuals who may not have otherwise had the chance to meet each other due to busy schedules or long distances between them. Finally, peer-to-peer fundraising can also help increase awareness about specific issues or causes since donors are more likely to engage in conversations about their donations than they would be if giving through traditional means such as direct mail campaigns or telemarketing calls.
10. Selling Goods and Services
Selling goods and services for nonprofits can include a variety of activities, such as:
1. Selling tickets to events: Nonprofits can sell tickets to fundraise for their cause, or they can use the ticket sales as revenue.
2. Creating and selling publications: Organizations can create newsletters, journals, magazines or other publications that they can sell to raise funds or spread awareness about their mission.
3. Selling in-house expertise e.g writing training consultancy : Nonprofits may be able to earn money by providing services such as writing articles or training sessions on topics related to their mission .
4 . Charity law implications : If selling goods and services make up a significant portion of your budget , seek expert advice about any charity law implications that may apply in your country .
What are the different types of nonprofit funding sources?
1. Donations
Donations are funds given to nonprofit organizations by individuals, corporations, and other entities.
Individual Donations: 69% of nonprofit funding comes from individual donations. Community fundraisers and social media campaigns can be effective ways to encourage more donations from members of the community. Make sure you make it easy for people to contribute by offering both online and in-person donation options.
Grants: Grants provide financial assistance for specific projects or programs that further the mission of the nonprofit organization receiving them. They are typically awarded based on merit or need and come with specific requirements attached such as reporting back on progress made with the grant money received.
Corporate Sponsorships: Corporations can provide financial support in the form of sponsorships which help cover costs associated with events or programs that benefit their brand’s image among consumers or members of an industry sector they want to target market towards (e..g., environmental sustainability). Membership Fees: Nonprofits can also generate revenue through membership fees which allow individuals who support their cause access to special perks such as discounts on products/services offered by the organization itself or access to exclusive events/information not available otherwise (e..g., free admission at museums across a city). Selling Goods & Services: Non
2. Grants
A grant is a form of funding awarded by a government or other organization to support an individual, group, or project. It is typically provided in the form of money, goods or services with no obligation to repay it. Grants are often awarded based on criteria such as need, merit, and purposeful use of funds.
In the context of nonprofit funding, government grants are often awarded by local and state governments as well as federal agencies for specific purposes such as buying equipment or technology. Other types of grants may provide general operating support to organizations that provide public goods or meet certain requirements (e.g., recognized 501(c)(3) charities receiving support from United Way).
3. Revenue Streams
1. Donations: Nonprofits rely on donations to cover the cost of their programs and services. Individual donors, major donors, corporate donors, and event sponsorships are all examples of donation-based revenue streams.
2. Grants: Government grants provide funding for specific projects or initiatives that align with the goals of the grantor organization. Some nonprofits also receive grants from private foundations or individual philanthropists to support specific programs or services they offer.
3. Fees for Services: Nonprofits may charge fees for their services such as counseling sessions or workshops in order to generate revenue that helps cover operational costs such as salaries and utilities bills..
4 . Product Sales : Selling products related to their cause is another way nonprofits can generate revenue; this could be merchandise like t-shirts or mugs with their logo on it ,or it could be something related directly to their mission like a cookbook filled with healthy recipes .
4. Investments
Loans and program-related investments are issued by foundations and some financial institutions. These types of investments do need to be paid back, along with interest. Capital funds are offered to support a variety of activities aimed at raising capital for nonprofits. Examples include construction or purchase of new buildings or equipment, as well as other large projects.
5. Charity Auction Biddings
1. Create a fundraising event to encourage people to bid on the items that you are offering.
2. Promote the event through social media and other channels to let people know about it and encourage them to attend or make a donation.
3. Set a minimum bid amount for each item and make sure that all bidders have agreed to this before starting the auction bidding process.
4. Announce when bidding will begin and set a time limit for how long it will last (typically around an hour).
5. Monitor bids as they come in so that you can keep track of who is leading in terms of donations made towards each item being auctioned off at the end of the bidding period .
6. Fundraising
Fundraising is the process of raising money for a nonprofit organization. It involves identifying potential donors, developing relationships with them, and soliciting donations or other forms of support.
The characteristics of fundraising include:
1. Understanding the needs and interests of potential donors in order to develop effective strategies for raising funds.
2. Promoting events, campaigns, and other activities that will appeal to potential donors or sponsors.
3. Training volunteers who can help with event planning and other fundraising activities such as phone banking or letter writing campaigns..
4 Managing funds raised from donations or grants so they can be used effectively towards achieving the nonprofit’s goals..
7. Crowdfunding
Crowdfunding is a form of fundraising where individuals can donate small amounts of money to a cause in order to help raise the large sum needed for a specific project. It is similar to asking for community donations, but generally used more to raise a large sum of money for one specific purpose rather than create a continuous revenue stream. Kickstarter campaigns are an example of crowdfunding, where organizations can use the platform to raise funds quickly through compelling stories, clear needs and concrete goals.
Crowdfunding differs from other nonprofit funding sources because it provides an easy way for organizations to reach out beyond their direct communities and garner support from new donors. Additionally, successful crowdfunding campaigns usually revolve around inspiring stories that resonate with general audiences and compel them to share with their networks.
8. Product Sales
Product sales funding is the revenue generated by selling goods or services. This can include products, services, tickets to events, in-kind donations and more. Nonprofit funding refers to the financial support given to a nonprofit organization in order to help further its mission or goals.
Product sales funding differs from nonprofit funding because it can be earned even if the organization’s primary purpose isn’t related to selling goods or services. Additionally, this type of income may be taxed as unrelated business income if it makes up a significant portion of your budget; whereas nonprofit funds are typically tax exempt (depending on the country).
9. Corporate Donations
When looking for corporate donors, it’s important to consider the features of this type of funding source. Corporate donations can come in the form of:
1. Sustained and recurring gifts — such as substantial one-time gifts, in-kind donations, or employee gift matching
2. Brand awareness — sponsorships provide an opportunity for companies to increase their public goodwill and demonstrate their corporate social responsibility
3. Increased customer engagement — when a cause is shared by a company’s leadership and customers, they tend to give larger gifts that may renew year after year
10. Partnership Agreements
A partnership agreement is an agreement between two or more parties to work together on a project or venture. It can be used for nonprofit funding by providing an outline for each partner’s responsibilities, rights, and benefits.
By having a partnership agreement in place, nonprofit organizations can ensure that all partners are on board with the mission of the organization and have equal say in decisions related to funding. Additionally, having such an agreement in place will help protect both parties from any potential legal disputes down the road.
How to maximize your nonprofit’s revenue streams
Step 1: Define your goals, mission, and story
1. Define your short-term and long-term fundraising goals. Reference your mission statement to help you come up with them.
2. Be transparent about how you plan to use the money raised from donors and how it will help your organization’s mission and purpose.
3. Consider how you’ll raise money, including tactics, promotion methods, and events that will attract donors’ attention.
4. Build reliable recurring donations so that you don’t have to spend as much time actively fundraising in the future..
Step 2: Create a fundraising team
1. Assign a dedicated individual or team to oversee all fundraising efforts. This person or team should have the authority and responsibility to promote fundraisers, organize fundraising events, train volunteers, manage funds, and measure performance.
2. Identify potential sources of funding for your organization such as grants, donations from individuals or organizations , corporate sponsorships , etc..
3. Research popular funding models that may work best for your organization (e.g., crowdfunding campaigns).
4 . Create a plan outlining how you will implement these models in order to achieve your fundraising goals (e.g., how much money you need and when).
5 . Implement the plan by assigning tasks to team members (e.g., creating social media campaigns), setting timelines for each task/goal outlined in the plan , tracking progress against goals regularly ).
Step 3: Build a prospect list
Building a prospect list can help maximize your nonprofit’s revenue streams by allowing you to identify exactly who to reach out to when fundraising. This will help you plan effective campaigns, such as social media promotions or direct mailings, which will result in more donations overall. Additionally, building a reliable recurring donation system can save time spent actively fundraising while still ensuring steady income streams for the future.
Step 4: Create a campaign plan
1. Define how you’ll raise money: Think about your tactics, how you’ll promote your campaign, and how people will hear about your events.
2. Build reliable recurring donations: This will help reduce the amount of time you spend actively fundraising in the future.
3. Assess and evaluate your current funding sources: Take a look at what you’re already doing and assess metrics such as ROI from each source to determine if it’s suitable for long term sustainability or if there are better options available.
4. Explore new possibilities: Brainstorm with team members to get creative and explore other possible options that could work for your organization’s unique mission & vision statement/goals/objectives etc..
5 Analyze potential outcomes from each option : Consider how much money can realistically be raised from each source along with other associated benefits such as increased awareness of cause/brand awareness etc..
6 Select one or two models to pursue : Commit to one or two models on short list then develop an implementation plan that makes them actionable by building internal capacity needed for success (ie hiring staff members with specific skillsets).
Step 5: Show gratitude
Thanking donors and other supporters for their contributions can help maximize your nonprofit’s revenue streams by building meaningful relationships with donors. By showing gratitude and appreciation, you build trust and strengthen the bond between your organization and its supporters. This will encourage them to continue supporting you, which may lead to increased donations or other forms of financial support in the future.
By maximizing your nonprofit’s revenue streams through gratitude, you will be able to sustain long-term funding for programs that are important to your mission. Additionally, grateful donors are more likely to volunteer their time or provide other kinds of in-kind donations if they feel appreciated by your organization.
Step 6: Test, optimize, and measure your strategy
1. Evaluate your current streams of revenue: Start by taking a look at what you’re already doing to bring in money and assess its effectiveness. Data is your best friend here, so pull up relevant metrics and see if there are any areas for improvement.
2. Identify opportunities for new revenue streams: Brainstorm with your team about ways to increase revenue or explore new options that could work better than what you have now. Look at what other similar organizations are doing and consider how they’ve been successful with their model(s).
3. Create a plan of action: Commit to pursuing one or two of the models on your shortlist and develop an implementation plan that will make them actionable; this includes figuring out resources (e.g., staff members) needed for success as well as setting realistic expectations about timelines for implementation and success rates depending on size/scope of organization/project etc..
4 . Test assumptions & measure results : Before going all in , find ways to test each assumption before investing heavily into it (e .g., crowdfunding campaigns w/ professionally produced videos/photography might need a small inhouse version first before rolling out full scale version). Monitor results regularly & make adjustments
Step 7: Monitor progress and make adjustments as needed
1. Plan: Take some time to think about your funding model before you start going through the motions of fundraising.
2. Assess and evaluate: Realistically assess your current funding sources, pull up relevant metrics, and consider how much you can realistically fundraise from each source.
3. Explore: Organize brainstorming sessions with your team to get creative and think outside of the box; look at what other organizations are doing for inspiration or success stories that could work for you
4. Analyze: Consider which options are sustainable, replicable, and feasible; narrow down your brainstorm list based on these criteria
5 . Select & Begin : Commit to pursuing one or two of these options as part of an implementation plan that will make them actionable; build internal capacity needed for success
6 . Monitor Progress : Track progress against goals regularly using data points from previous years or other indicators of success (e g , number of donors). Make adjustments where needed so that fundraising efforts continue to be successful
Step 8: Close the sale
1. Identify your target donors and potential revenue streams. Make a list of individuals and organizations that could potentially donate to your nonprofit, as well as the types of donations you would like to receive (e.g., cash gifts, in-kind donations, event sponsorships).
2. Create a fundraising plan and tactics for each revenue stream type you identified in step 1. Consider how you will promote your campaign, when people will hear about it, how much time you’ll need to spend actively fundraising for each revenue stream type (or if there are any automated systems involved), etc..
3. Set goals for each type of donation so that you know when you’ve reached success with a particular donor or group of donors (e.g., raise $10k from individual donors this year).
4 . Track progress regularly by reviewing metrics associated with each goal (e . g . , number of emails sent out , number of responses received , etc .)
Reporting Revenue from Funding Sources
Contributions made to nonprofits don’t follow the normal revenue reporting rules since they are non-reciprocal. A contribution should be generally reported after a commitment to donate is made or after receiving the donation. If there are any restrictions imposed as to when or how the funds are to be used, this does not affect the timing of recognition, only the classification of the revenue as ‘with donor restrictions.’
However, in the event that the donor’s contributions will only be availed after meeting certain requirements, then the timing of recognition can be affected. In such a scenario, you are supposed to recognize the given conditional promise, which will act as support until the organization meets all required conditions.
Recognizing Grant Funding
When it comes to nonprofit grants, there is a need to determine whether they qualify to be an exchange transaction. If the grant falls under the exchange transaction, then it will be subject to the five-step framework of ASU 2014–09 as listed below:
- Identify the contract made with a customer
- Identify the required performance obligations spelled out in the contract
- Determine the quoted transaction price
- Allocation of the transaction price to the contract’s performance obligations
- Recognition of revenue after satisfying the performance obligation
Bottom Line
In a nutshell, nonprofit organizations require funding sources in order to run their day-to-day operations. The contributions made act as the organization’s revenue and must be reported in accordance with ASU 2016–14. The information above clearly outlines how nonprofit funds are sourced and how funding is reported in order to remain compliant and transparent.
Want to read more? Check out these insightful articles:
- Functional Accounting: Guide to Classifying Expenses
- Advantages of Fund Accounting Software for Nonprofits
- How to Increase Nonprofit Funding Using Accounting Software
- Practices to Modernize Your Donor Stewardship Plan
- Why A For-Profit Strategy Can Boost Nonprofit Revenue
- Nonprofit Grant Management: Best Practices for Reporting Funds
- Form 990: Guide to Filing Instructions for Nonprofits
- New Tax Laws Affect Charitable Contributions
- Nonprofit Accounting Course: Essential Skills Training
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Originally published at https://araize.com/nonprofit-funding/