Nonprofits are masters at creating new and inventive ways to fundraise every year.
For many, that involves a combination of income sources that, together, make up their funding model.
A funding model is defined as the methodical and institutionalized approach to bring in revenue to support an organization’s core programs and initiatives. Most funding models include multiple income streams that are active throughout the year. For example, one nonprofit could receive forty percent of their funding through donations from individuals, thirty percent from corporate sponsorships, and thirty percent through grants, while another organization could receive all their funding through a major donor program.
While each nonprofit must decide what their own fundraising model looks like, it’s advantageous to develop several different types of income streams. This creates a well-balanced funding structure that can withstand periods when contributions slow, whether it is due from an internal change, or an economic downturn. Let’s take a look at a few of the most common funding resources.
Donations from Individuals
For most nonprofits, donations that come from individuals within their donor community make up the bulk of its yearly income.
Donations that come from individuals come in either one-time or recurring donations, through events, sales of products or services, membership fees, planned giving, subscriptions, legacy gifts, auctions, fund-a-need, and raffles, etc. Because this group oftentimes brings in the largest amount of funding, creating good fundraising strategies around these activities is an effective way to open up the pipeline to more contributions.
Fees for Services and Sales
For some nonprofits, fees charged for special services or the sale of product can be an enormous income resource for their funding coffers. As an example, a teaching hospital could also act as a public health clinic that charges fees for medical services on a sliding scale to an underserved community, as well as medical products that are sold inside their on-site or online stores and tuition fees for continuing education classes offered through their advanced teaching programs for practicing medical professionals.
According to the National Center for Charitable Statistics, the income gained from service fees and other sales account for 47.5 percent of the total revenue for public charities in the form of tuition, membership fees, paid services and sales, etc.
Federal, state, and local governments offer nonprofits funding through grant programs. These are programs that typically reward the money without an expectation of repayment, but they may offer it only to organizations that fit a specific requirement, such as location or type of program, making it necessary to conduct thorough research prior to applying for a grant. There are professional grant writers that can be hired to prepare your application’s proposal and give you a leg up on the other nonprofits competing for the grant.
A federated fund is a fundraising tactic that mobilizes people within a specific group, such as a workplace, to gather contributions to give to a diverse range of nonprofits. When a federated fund, such as the United Way, is set up through a business, the managers may offer to automatically deduct a specific amount out of the participating employees’ paychecks and match the funds donated by employees.
Major donors are a valuable asset to a nonprofit, but a relationship with this category of donor may take years to develop. They typically have a larger role as a donor and can be more invested in the actions of the organization in return for the large gifts they provide either annually or to a specific project or fundraising campaign.
Cultivating a relationship with a major donor is most often done by assigning one or two board members to learn how to best work with the donor and crafting a communication plan that is not too intrusive but keeps them updated on key initiatives and the overall running of the nonprofit. When it is time to ask for a large donation, it’s best practice to bring along the board member assigned to the donor and an executive for a face-to-face meeting where questions can be answered, and reassurances will be made that the donation is managed in the correct manner and the projects are advantageous to the mission.
Receiving support from a foundation can serve as a partnership between the nonprofit and the foundation to raise money for a mission they share, or it could be a separate entity that funds several nonprofits at the same time.
Foundations are unique in size and type, but their operating status falls into one of two categories: private operating or private nonoperating.
Private operating foundations design programs aimed at reaching their funding goals directly, rather than through another funding organization. They may be museums or research groups and may act as a financial support to other organizations that would, in turn, support the work of the nonprofit through sales, research, public awareness, or other means.
Private Nonoperating foundations, or grantmaking foundations, offer grant money to nonprofits through an application process and are required to distribute a specific percentage of their yearly endowment money within a certain period of time to other nonprofits.
Family foundations offer funding from the wealth of a single family. While well-known foundations represent prominent families, like the Gates Foundation or Rockefeller Foundation, the largest number of foundations donate to charities that are much smaller, lesser known and that fund projects in their local area with little oversight on behalf of the family foundation.
Corporate foundations are also considered private foundations and are often managed by a board of directors made up of corporate officers as a separate entity from the corporation. They typically have a staff to manage the workload and fund work that pertains to their corporate identity.
Community foundations are public organizations that collect funding from many donors and award them to nonprofits through grants, scholarships, and through services. They are active in donor-advised funding to encourage donors who want to become more driven in their giving but don’t want to set up private foundations and they often organize giving days to raise funds for local nonprofits, such as fun runs.
An effective funding model can be construed in many different configurations, but the best, most reliable structures include more than one mode of funding. Try several different combinations to see where you get the most traction in raising funds, then expand on those until you are at a comfortable level of funding. After that, you can experiment with other funding strategies until you have various income streams, profitability, and reliability. This will set you up with a well-balanced and robust funding strategy that will be able to support your nonprofit’s goals during economic fluctuations.