6 Non-profit Funding Streams You Need for Sustainability
Most new non-profit organizations struggle to identify an adequate number of non-profit funding streams. I often hear the question “how can I get a grant”. The truth is, small organizations (and small businesses) are not ready for the rewards and burdens that come with grant funding.
It’s important to have a sustainable set of non-profit funding sources that are working properly for your organization. This blog post will teach you more about the types of funding sources and how you can use them effectively to accomplish your goals.
I started my career in the development department of a medium-sized nonprofit in Orange County, CA over 20 years ago. I was an intern through the SAGE Scholars program from U.C. Irvine. One of the first things I learned was the donors and how each of them contributed to the organization.
I was so good at memorizing rich people’s names, businesses, and faces that many of them would be happy to see me or hear from me. At 20 years old, that was pretty cool.
Fast forward to today when I’m working with start-up nonprofits (who don’t often have a roster of rich people laying around). The lessons I’ve learned about funding since 2001 have helped me understand the true story of how to create sustainable funding models.
And now I pass that on to you. Enjoy this mini-lesson in sustainable funding.
Braided vs. Blended Nonprofit Funding Streams
Sometimes people get confused and say they want to manage their non-profit or get a program running by blending funding sources. What they really mean is they want to use multiple sources of funding in a way that makes sense and follows the guidelines/expectations of my donors and funders.
Blending non-profit funding streams can result in unintended consequences. Such as getting in trouble with a funder.
In many cases, if one of those funding sources is grant funding blending funding is a big mistake. Grant funding generally must be accounted for and cannot be co-mingled with other funding to the point when you don’t know what source of funding covered your expenses.
Let’s Get to Know Blended Funding aka Spaghetti Pile
Blended funding looks something like this, a big messy pile of spaghetti where you have no clue the start and endpoint of your noodle and it’s mixed in all messy with everything else.
The federal government and other funders hate this because it’s difficult to track how and how much money you spent from grant funds. This type of situation can signal to a funder that you lack internal controls in an audit.
Braided Funding Spaghetti To The Rescue
The braided funding approach is key for sustainability. For sustainability planning you have to:
1) have a diverse set of funding sources,
2) be able to track each source, and
3) have a high-enough funding goal to cover your expenses and growth.
Braided funding looks something like this. Each source is used together in harmony with the other sources. However, you know how much of that revenue is coming in and how much has been used.
Braiding your funding will help you keep control of your budget, remain solvent, and set high-enough funding targets each year to be successful and thrive.
In terms of spaghetti, think of it as every piece contributes to the same dish but you know where it came from and where it got eaten (expended).
6 Essential Funding Sources for Nonprofits
In order to braid funding, you need funding streams to braid. This is not a comprehensive list of funding sources. This list is just the basics so you have an understanding of where you can grow and what other types of funding you can explore.
Individual donors are people who care about your cause, who have become aware of your organization and have given a one-time or recurring donation. This includes cash donations as well as goods and services.
When cultivating an individual donor stream here are a few things to consider.
- Capturing the donation is a bit like the customer journey for a business. The individual has to decide whether to give you the donation or not. Your job is to make this easy for them.
- Think of all the possible ways that individuals can donate to you and how accessible this information is. If you are using 3-rd party donation websites how much of a cut will they take from each donation processed?
- Set targets for individual donations that meet your needs, challenge you to grow, and are in-line with the actions you are taking to get the donations in the door.
Major and Corporate Donors
Major donors can be corporations or individuals. Corporate donors are businesses that are giving rather than an individual. This can get a bit confusing because a corporation can definitely be a major donor.
For example, if the corporation holds a special campaign on your behalf and collects a significant amount of money from their entire staff. That would be a major donation from the corporation made from many small individual donations. This would be both a major and a corporate donation but not an individual donation because you won’t get the information from each of those individuals. You’ll only get the lump sum donation from the corporation.
- Each year plan to directly approach a set number of corporations or set a % target for corporate giving. Once you build a strong relationship with corporations this can be a nice source of annual giving.
- Cultivate a roster of major individual donors by finding people who are willing to give large sums of money to your cause and are passionate about it. Finding these people might sound hard, but you never know who will give a large donation. Sometimes people who aren’t “wealthy” will give large sums to causes they really care about.
- Make it easy for major donors and corporate donors to find you. Create a space just for them on your website where you tell them all the benefits of supporting you with BIG sums of money. This might include sharing some aspirational parts of your vision and where your organization needs to grow with a large amount of capital.
There are loads of different types of special events you can host. Special events give people who know nothing about you the opportunity to support your cause and attend an event they’ll enjoy. Special events can take a lot of work to host, like a gala. Events can be simple, such as a local restaurant donating a portion of proceeds to your nonprofit on a specific night.
- Create sustainable special events that can bring you revenue each year by having a committee and partners who help you plan and execute the event o an annual basis.
- Create virtual and in-person event opportunities to attract people who are not in your geographic area.
- Track revenue from events closely so you know which events were most lucrative and should be repeated in the future.
Grants are one of the most attractive funding sources because you don’t have to pay them back. However, grants are extremely competitive and can cost you money if you hire a grant writer. Building in-house capacity to write grants takes time, energy, staff, and creativity. The easiest way to approach grants is to be ready for them before you go after them and to find the right fit for your needs.
- Choose to apply to grants that are within your niche and where they funder’s priorities align to what you do. Don’t chase money you are unlikely to get, it’s a waste of energy.
- Grants have a season, watch funders year after year to understand when they open certain grant competitions that you qualify for. Include the funders you are watching in your organization’s annual planning so you have the capacity to apply to the grant when it is open.
- If you are applying to major funders or government organizations, consider partners. Sometimes the best grants are those where several smaller organizations that could not successfully handle the grant alone come together. Creating coalitions, partnerships, and consortums is a great way to fund more organizations in your community.
Annual campaigns are exactly what they sound like, an annual fundraising effort that you use all channels to communicate about. You might know a very common annual campaign that happens every year, The Salvation Army every year has red buckets and volunteers in the community ringing bells for donations during the holiday season. That’s an annual campaign.
- Using all your social media, snail mail, website, and other channels to advertise your annual campaign will help raise your visibility.
- Schedule your annual campaign for a time in your annual plan when you have the capacity to execute it and are not in dire need of the funding. Desperation should not drive an annual campaign.
- An annual campaign is a systematic year after-year way to raise funds. Your donors should expect to see the campaign coming at the same time each year. Create an effort where existing donors are hype about the campaign and new donors can be recruited.
Special campaigns might align with a time-sensitive need, a specific issue your cause is facing, or something timely given current events. You can decide to do a special campaign at any time. That’s one of the great things about a special campaign, you just have to tell people you’re having it. You don’t even really need a reason if you market it right.
- If you need to raise funds for a specific need, make sure you are clear what your campaign is supporting. This will help potential donors identify with your cause and can give them another reason to support you.
- Be clear that this special campaign is above and beyond your annual campaign. That way donors who choose to support this campaign will also know that the annual one is coming their way as regularly scheduled.
- Time-limited or time-sensitive campaigns can help donors get on board to donate quickly. However, you should still not use this type of campaign out of desperation. Special campaigns take planning and a lot of effort to execute successfully.
Coordinated Funding Model for Nonprofits
Now that you have the basics it’s time to make your life a little more complicated with one final funding model. The coordinated funding model uses dedicated funding streams for a specific function. Each function, program, or service, is coordinated with the others to support the overall organization.
If we’re sticking with our spaghetti drawings, it looks a little something like this. I’m quite proud of these illustrations actually. They start to demonstrate the different use cases for each of the funding models.
For example, in a coordinated funding model, you might use this as a way to manage your overall organization’s fundraising strategy. Say for example you have something like this with major and individual donors covering your administrative costs while grant A covers one service and Grant B covers another.
This way, all of your unrestricted funding from direct donations can be used on things that the grants may not cover like rent, HR costs, or legal fees that are not directly related to the grant activities.
The coordinated funding model is kinda like serving a whole meal on a platter and enjoying each part equally for contributing towards your meal. Each has its own value, purpose, and source, but when put together it works in harmony.
I’m sure you can see by now why there are multiple ways to fund your venture and how you can use different funding models for different reasons as you grow and mature in your fundraising strategy.
How Complicated Is This… For Real?
If you’re a new nonprofit leader (congrats!). This might all sound very confusing, I agree. Back when I started learning about non-profit management 20 years ago… I would have been confused too.
But the good thing is, you can learn. And you should.
If you want to remain solvent, sustain your growth, and make the vision you have in your head a reality… you really need to know the basics about fiscal management as you grow.
Once you start to grow and diversify your funding streams, you will learn more about the intricacies of each. That’s when you can start to be strategic about your fundraising and what money you allocate to what specific purpose.
For now, just know that as you think about grant funding, there are a lot of other options to explore while you find the right grant, apply, and wait to get funded.
If It’s Free It’s for Me
This is a great motto for non-profit leaders when you are looking to learn how to sustain your work.
Fortunately for you, I have a treasure trove of things you might be interested in.
Why do I do so many free things?
Great question! Because I know you need tools to help you grow and make an impact. Click this button and bookmark the page where all my free resources live so you never miss a freebie.