Nonprofits spend a lot of time and resources developing fundraising strategies or planning marketing campaigns to expand their donor base. Because these initiatives, combined with managing the day-to-day operations of a nonprofit, take so much time, it’s easy for organizations to fall into funding ruts.

For example, say a nonprofit relies heavily on a single grant that provides 60% of its annual revenue. While it’s tempting to just lean on this funding source, what will the organization do if they don’t win the grant or the funder decides to do something else with that money?

Diversifying your nonprofit’s fundraising revenue helps protect you from situations like this, creating a revenue cushion padded by additional streams. In this guide, we’ll cover the top reasons why diversifying revenue is such an important part of effective financial management.

1. Reduce financial risks.

Any nonprofit will run into problems when it puts all of its financial eggs in one basket. For example, imagine one nonprofit has three major donors who each give $10,000 annually. Another has 30 mid-tier donors who each give $1,000 each year. If the first nonprofit loses just one of its donors, that’s a third of its funding they no longer have access to. However, the second nonprofit would need to lose 10 of its donors to run into the same problem.

Aim to be more like the second nonprofit by generating revenue from multiple sources. Here are five revenue streams to consider:

  • Grants. Generally, each grant will have a specific purpose for which it is awarded. Work with a professional grant writer to put together compelling, data-backed proposals that boost your chances of winning the grant.
  • Major donations. Major gifts may come in the form of donations to your organization, endowments that create interest, and bequests provided as part of supporters’ wills. No matter what, they require your organization to develop strong relationships with supporters.
  • Corporate contributions. Build relationships and partnerships with local businesses to take advantage of corporate contribution opportunities. Matching gifts, event sponsorships, and corporate grants are all potential revenue streams that come from these relationships.
  • Lower-tier supporters. Lower-tier supporters often donate on your nonprofit’s online donation page or at fundraising events. Optimizing your website’s donation pagehosting events like 5K races, and launching peer-to-peer fundraising campaigns are all great opportunities to reach these donors.
  • Earned revenue. Nonprofits are free to sell goods or services to raise money for their organizations. For example, an animal shelter can sell branded t-shirts to their community of supporters to raise awareness and funds for their shelter.

Before selling products or services, double-check with an accountant to make sure the sales are relevant to your mission. The IRS provides guidance on which scenarios are still considered tax-exempt, and an expert can help you understand whether your fundraiser or product qualifies. Otherwise, your organization’s sales may be subject to the Unrelated Business Income Tax (UBIT).

2. Improve your nonprofit’s visibility.

Diversifying your revenue sources can also help you reach new audiences and spread awareness of your cause. As you consider how to generate revenue in new ways, explore opportunities to expand your reach as well. Here are a few ideas to help you get started:

  • Launch a branded online shop. In addition to diversifying your revenue, selling products can also boost awareness of your cause. For instance, any time a supporter wears a t-shirt or carries a tote bag with your logo on it, they’re advertising your cause to the public. To sell more products and offer a smooth experience for your supporters, make sure to list them in an online store. Look for online stores that are free to use and customizable so you can update them with your brand elements and mission.
  • Work with local businesses. By building relationships with local business owners or executives, your organization can open itself up to more than just donations. Double the Donation’s corporate sponsorship guide discusses other revenue sources that could come out of these relationships, such as financial sponsorships, in-kind contributions, promotional media, volunteer grants, and employee matching gifts.
  • Join in at community events. Your local community is one of the best places to build out your network of supporters and professional contacts. Boost visibility and drive additional revenue by participating in community events like market days, festivals, school events, etc. For example, an animal shelter might set up a booth at a community festival to accept donations, show off adoptable animals, and sell branded pet accessories.

Additionally, look for ways to drive more fundraising revenue by implementing convenient donation methods like text-to-give or encouraging supporters to promote your cause to their personal networks. For example, you might launch a referral program that rewards supporters who refer their friends and family members to your nonprofit with branded merch or exclusive event tickets.

3. Create more organizational autonomy.

As mentioned in the first section, relying too heavily on one revenue source can leave your organization in a dangerous situation if anything happens to that single source. However, it can also limit what your nonprofit can do with its funding.

Oftentimes, supporters or grantmakers prefer to dictate how their donations can be used. Typically, they want donations to fund their preferred initiative rather than going toward overhead expenses. Jitasa’s restricted funds guide explains that this isn’t a bad thing, especially if you can have open conversations with major donors about what your most pressing needs are. However, if your nonprofit’s needs and the donor’s general interests don’t align, it can create a challenging situation for your organization.

Let’s say your nonprofit has one major donor who provides gifts of $5,000 annually to support your scholarship program, and you then acquire another major supporter who wants to fund the same program. You now have a surplus restricted to this specific program, while another fledgling initiative is struggling.

By diversifying your revenue, your nonprofit will have more flexibility and autonomy over where money is allocated. Some gifts will likely still be restricted, but your programming will also be supported by a range of other contributions.

4. Increase the potential for growth.

Imagine trying to convince an annual donor who typically gives $4,000 to give an additional $2,000 on top of their current contribution. That money might be vital to your success, but the prospect of asking for it can be daunting.

On the other hand, convincing 200 of your donors to give an extra $10 on top of their $100 annual donation seems much more doable. After all, $10 is a much easier ask than $2,000.

Diversifying your revenue opens up new opportunities for growth at your organization by providing systemic ways to increase campaign revenue. As you come up with your organization’s goals for growth and success, having more supporters on your side can make things much easier.

However, you’ll also need to keep a few key aspects of this strategy in mind:

  • To grow your nonprofit sustainably, you’ll need to focus more on retaining your existing supporters. Invest in your stewardship strategy to show how much you value and appreciate your supporters.
  • Determine how additional revenue streams will fit into your larger strategic plan. You shouldn’t constantly ask for greater and greater amounts from your supporters because it can come across as greedy and ungrateful. But determining when you have a true need, explaining this need, and timing your asks well will help you make the most of your relationships.

Diversifying revenue and maintaining that diversification over time provides a sustainable path forward for growth and development. Recruiting and retaining donors of all sizes will help you build on this sustainable growth potential.

Diversifying your nonprofit’s revenue can be a lot of work, but it’s the best way to keep your organization afloat and financially healthy. It protects your nonprofit against external economic turbulence, increases your visibility, provides additional autonomy over your mission, and leads to future sustainable growth.