Nonprofits spend a lot of time and resources determining their annual fundraising strategies and the campaigns they’ll host as a part of this strategy. Because it can take so much effort, it becomes easy for organizations to become reliant on their “ol’ reliables” as fundraising sources.
Consider a nonprofit that relies heavily on a single grant to help fund its mission each year. They earn 60% of their revenue from this grant and have won it for the last six years. Why shouldn’t they continue relying on it?
Well, many nonprofits figured out why this can be a dangerous strategy during the initial stages of the COVID-19 pandemic. In 2020, many of these “ol’ reliable” funders found themselves in a more precarious financial position and were unable to provide the same grants or major contributions they usually would. The nonprofit above would be forced to operate without the majority of its revenue if its grant funder ran into financial trouble.
However, if nonprofits diversify their fundraising revenue streams, this becomes less of an issue. In this guide, we’ll discuss why diversifying revenue is such an important part of effective financial management. Diversification can:
- Reduce financial risks.
- Improve your nonprofit’s visibility.
- Create more organizational autonomy.
- Increase the potential for growth.
All nonprofits strive for financial security in order to pursue their missions. Let’s dive in to learn more about how diversification plays a key role in a sustainable and secure revenue strategy for your organization.
1. Reduce financial risks.
As explained earlier, nonprofits run into problems when they put all of their financial eggs in one basket. You can never predict when a funder might run into difficulties or when they might change their minds about financing your cause. This creates a lot of risk for a nonprofit’s financial sustainability when they become overly reliant on an unpredictable funder.
Imagine one nonprofit has three major donors who each give $10,000 annually. Another has 30 mid-tier donors who each give $1,000. 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 and spread out your revenue across a number of streams. More than that, try to spread it across a number of different contribution types to increase diversity further. For example, try investing in revenue streams such as:
- Grants. When nonprofits have an effective grant writer, they have the means to collect the necessary funds for many specific initiatives. Generally, each grant will have a specific purpose for which it is awarded to the nonprofit.
- Major donations. Major gifts may come in the form of donations to your organization, endowments that create interest, and bequeathments 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 new grant options are all potential revenue streams that come from corporate relationships.
- Lower-tier supporters. Lower-tier supporters often donate on your nonprofit’s online fundraising platform or at your donation events. Featuring your online donation page on your website, hosting events like 5K races, and launching peer-to-peer fundraising campaigns are all great opportunities to reach these donors.
- Earned revenue. If your nonprofit sells goods or services related to your mission, you can collect revenue from those sales as earned revenue. However, you need to double-check with an accountant to make sure the sales are relevant to your mission. Otherwise, your organization may have additional tax forms to consider.
Provide your fundraising team with resources to help them learn the ins and outs of different fundraising perspectives. Consider fundraising training that will help some members of your team specialize in your major donor initiative or to write more impactful grant proposals.
Once your team has a solid foundation of knowledge for how to launch all of these types of campaigns well, they can add some variety to the annual development plan. Several different types of gifts from a variety of campaigns and sources will create the revenue diversity that leads to security for your nonprofit. The additional training and knowledge you instilled in your team will also ensure that your plan is sustainable for the future.
2. Improve your nonprofit’s visibility.
Diversity in your fundraising strategy also comes with other benefits. You’ll diversify the audience you’re working to reach and create more opportunities for supporters to engage with your mission through your various campaigns.
Therefore, as you spread the word about your fundraising opportunities, your nonprofit will also have the opportunity to get in front of more and more people.
Look for these opportunities and for new ways to expand your organization’s reach through existing campaigns. Collect donor data from the contributions and conversations you have with supporters and note any connections they have that could be beneficial to your organization. You might find more connections 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.
- Skilled volunteers. Volunteers are more than just the people you see painting faces and serving food at events. They can also help with your nonprofit’s graphic design work, copywriting skills, photography, and more. Keep track of supporters with these types of skills so you can reach out to them as needed.
- Government officials. If your nonprofit participates in advocacy campaigns, access to government officials is a key aspect of your strategy. Having government representatives (or connections to them) as a part of your support base allows easier access to tell these powerful individuals about your cause and how they can show support.
By incorporating more fundraising types and revenue sources, your organization will also naturally reach a wider variety of audiences. This provides more access to different segments of valuable supporters, increasing your potential reach.
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 ever happened to that single source. However, it can also make it more challenging for your nonprofit to operate in the way you deem most valuable.
Oftentimes, supporters or grantmakers prefer to dictate where their donations will be allocated at the nonprofit. This assures them that the money will be used for their preferred initiative rather than going toward overhead expenses. Jitasa’s restricted funds guide explains that this isn’t a bad thing at all, especially if you can have open conversations with major donors about what your most pressing need is. However, if your nonprofit’s needs and the donor’s general interests don’t align, it can create a challenging situation for your organization.
Imagine your nonprofit has one major donor who provides gifts of $5,000 annually to support your scholarship program. Then, you acquire another major supporter who also gives $5,000 to your scholarship program. You now have a surplus restricted to this specific program, while other aspects of your mission may be struggling.
By diversifying your revenue, your nonprofit can have more autonomy over where your money is allocated. While you’ll still have restrictions on some of the gifts made to your mission, your programming will also be supported by a range of other contributions and gifts. This means you’ll have more control over the allocation of funding, allowing you to bolster your lower-funded programs and cover overhead expenses.
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. If you’re launching a campaign or a new program, that extra $2,000 may be vital to your success! However, the prospect of asking for it can be daunting as it’s a much higher donation amount to ask for than usual.
Now, imagine trying to convince 200 of your donors to give an extra $10 on top of their $100 annual donation. This option seems much more doable because the funds are spread thinner across your supporters. $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 improve your 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:
- In order to grow your nonprofit sustainably, you’ll need to focus more on retaining your existing supporters. Invest in your stewardship strategy to show appreciation for all of your supporters and show you’re invested in them.
- Determine how your 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 allows your nonprofit a sustainable path forward for growth and development. Looking for and retaining donos of all sizes will help you develop this sustainable growth potential.
Diversifying your nonprofit’s revenue can be a lot of work, but it’s ultimately the best way to keep your organization afloat and financially healthy. It not only protects your nonprofit against external economic turbulence, but it will also increase your visibility, provide additional autonomy over your mission, and lead to future sustainable growth.
Consider the new streams of revenue that your organization can expand into and how they may impact your financial strategy as a whole. Good luck!
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not-for-profit organizations.