New ways for nonprofits to raise revenue spring into existence every year, but where those funds come from stays pretty much the same year after year. There is also a basic inventory of methods that should form the backbone of your fundraising efforts. These are, literally, your "bread and butter."
Nonprofits fund their programs with a basket of income streams, such as:
- Self-Generated Fees for Services.
Even though the first thing that comes to mind when we think of nonprofits are the donations that most of us give to our favorite charities, the bulk of the income for the charitable sector actually comes from fees for services rendered and/or the sale of products.
Just think of a university, for instance, that generates income from tuition, or a public hospital that charges patients (or their insurance companies) for the services given. Such nonprofits might also receive income from government contracts and fees, and legislated support from taxpayers.
A public university, for example, is in great part supported by the taxpayers in that particular state. That university also sells products through its bookstore and tickets to artistic and athletic venues, while the hospital maintains a gift shop and likely provides community services for which it charges. According to the National Center for Charitable Statistics, such income sources provided close to three-quarters of the income in the nonprofit sector in 2010.
- Charitable Contributions.
Although the total income for nonprofits comes from an assortment of sources, of which contributions are but a part, individuals are the largest source of charitable donations for nonprofit organizations. According to Giving USA, total charitable giving in the U.S. reached more than $298.4 billion in 2011. Of that amount 73% came from individuals. The rest of the philanthropic pie is made up of grants from foundations, through bequests, and by way of corporate philanthropy.
- Corporate Philanthropy. Corporate philanthropy has come to be a integral part of the identity of most large corporations and many smaller businesses as well. CSR (corporate social responsibility) has become more important as consumers have become more likely to buy from socially responsible companies.
Corporate funding can be a long-term commitment to certain causes and the charities connected to them, or corporate funding can be more episodic and market driven, revolving around particular campaigns, events, and projects. Corporate funding can be a good source of support for new initiatives, special programs, and special events. Nonprofits increasingly look for opportunities to form partnerships for sponsorships and cause-related marketing.
- Federal, State and Local Governments. Many nonprofit institutions benefit from all levels of government. Obvious examples are public education, higher education, and the public media. Federal, state, and local government grants fund many programs provided by nonprofits, especially in areas such as urban human service nonprofits, and healthcare. Grants.gov provides up-to-date information and a directory of federal grants.
- Federated Funds such as United Ways, United Arts, etc., can be steady sources of relatively large amounts of money. Available only to well established nonprofit organizations.
- Grantmaking Public Charities. These organizations are a cross between a private foundation and a charity. They typically receive funding from the general public, government and private foundations. They may do public service, but primarily raise funds and provide grants to charitable nonprofits that provide direct service. You can find many such grantmaking public charities in your local area. Some are associated with an overarching national organization (the Junior League is one such example). Grantmaking public charities file IRS Form 990 so information about them can be found in many databases, such as at the Foundation Center and GuideStar.
- Foundations come in various sizes and types but their grants can be important and substantial. They can include:
Corporate Foundations are private foundations, but their boards are often made up of corporate officers. Their endowment funds are separate from the corporation and they have their own professional staff.
Family Foundations receive endowments from individuals or families. Many large, iconic foundations are family foundations. Think of the Gates Foundation, the Rockefeller Foundation, and the Ford Foundation. These family foundations have endowments in the billions, but most family foundations are much smaller, tend to fund locally, and often have little to no professional staff.
Community Foundations are public foundations and pool the assets of many donors. They work to improve their local communities through grant-making, awarding scholarships, and providing services to donors. Community Foundations have become very active in providing donor-advised funds for donors who want to become more purposeful in their giving but don't want to set up their own private foundations.
Ongoing Vs Episodic Funding
Besides seeking support from a variety of sources, your fundraising program should seek both ongoing financial support and episodic support.
Ongoing support is usually gained through:
- The Annual Fund. An annual fund means just that, annual (or more frequent) appeals to a core group of constituents. Such funds are usually unrestricted (available for any use) and may represent a large percentage of your annual income.
- Sales of Products and Services. Some nonprofits own stores or provide services that can represent a substantial income stream. The Girl Scouts is one obvious example with its annual sale of Girl Scout cookies, and Goodwill Industries is probably the largest nonprofit retailer. A symphony or theater earns income through the sale of tickets. Earned income must be related to the mission of the organization or it can be taxed as unrelated business income.
- Multi-Year Grants. A grant-giving organization such as a foundation may provide restricted funding for a particular project or program, or unrestricted funding to help cover the overhead costs of running the organization.
- Endowment Income. Many large nonprofits, particularly higher education institutions and healthcare organizations build up large endowment funds that produce interest that is used to support the organization.
Two Special Types of Fundraising
Two types of funding fall outside the scope of ongoing and episodic methods and include a wide range of sources.
The Capital Campaign. A capital campaign is a multi-year fundraising campaign with a particular goal such as:
funding a new building.
raising funds for a particular project, such as cancer research.
increasing a particular asset such as an endowment.
- Planned Giving. Most nonprofits now have planned giving programs which enable a donor to confer a gift at the time of his/her death; or to give a large gift immediately while receiving income during the donor's life.
A good fundraising plan will include a balance of these techniques and sources. Establishing unrestricted, ongoing funding is the most important, followed by other funding that will grow the organization and ensure its future.
Use this Chart of Income for a Nonprofit to track your organization's income by amount, type, and percentage of total income.