All nonprofits rely on a mix of sources for their income, and funding can come from individuals, foundations, corporations or local and federal government. Some nonprofits charge a fee for certain kinds of services, and some sell goods or services to generate revenue. It’s important to diversify your revenue stream and have a healthy mix of funding sources for your organization. Here are the most common types of revenue streams for nonprofits.
Of all donations made to nonprofits, 71 percent come from individuals.1 Your individual contributors will include a mix of high-level donors (major donors), and mid- to low-level donors (regular donors).
Individual donors can make one-time or recurring donations. They might give to your organization through events (including event tickets as well as additional fundraising activities at the events, such as raffles and auctions), annual appeals or planned giving (leaving money to a nonprofit organization in a will). Some individuals or families also have family foundations that can help them make gifts to charities.
Identifying and Cultivating Major Donors
For nonprofits, 88 percent of total dollars raised comes from just 12 percent of donors,2 so focusing efforts on major donors is important. While major donors won’t give as frequently as smaller-level donors, the gifts they give will be significantly larger; therefore, nonprofits should have a strategy in place to continually cultivate major donors.
The level at which a donation is considered “major” varies from one organization to another. Take a look at your organization’s history of giving and identify the largest gifts to determine what would be considered a major gift. Large organizations might consider major gifts to be six-figure gifts and above, while small organizations might consider a gift of a few thousand dollars to be a major gift.
Major gift prospects need to be connected to your organization’s mission, and they need to have both the inclination and the capacity to give large gifts. Starting with your largest donors, most frequent donors and board members is a great way to start cultivating major gift donors. If your budget allows it, consider investing in wealth-screening software (for more information on databases and wealth-screening software, see the chapter “Essential Software Your Nonprofit Needs to Increase Donations
After you’ve identified your top major gift prospects, building relationships and soliciting gifts from major donors takes considerable time and effort. You might take a number of steps while cultivating them, including meeting them face-to-face in a one-on-one setting; inviting them to tour your facilities; having them meet your Executive Director; inviting them to events; asking them to volunteer for your organization; and providing them with regular updates and thanks.3 Then, of course, they need to be asked for a gift — either to support a specific program or an unrestricted donation to support the organization.
Foundations and Other Organizations
There are more than 100,000 foundations in the United States.4 Private (non-government) foundations vary in size, scope, capacity and the processes through which they make grants. Many foundations will make a grant to an organization on an annual or one-time basis, and require detailed applications and reports.
Larger foundations are likely to have websites with their guidelines and requirements; other good resources for information on private foundations include Foundation Directory Online
. While some foundations will give general operating support or unrestricted funding, most prefer to fund specific programs or initiatives. Foundation funding typically comprises a small portion of a nonprofit’s income (around 2 to 4 percent), but can play an important role in funding new programs or strengthening existing ones.
In addition to private foundations, there are also federated funds (organizations such as the United Way) that can provide funding to nonprofits. Public charities are a mix of private foundation and charity — they receive donations from the public (and perhaps the government and private foundations), but pass along some of their money to other nonprofits. The Junior League is an example of this type of organization5.
Community foundations (or donor-advised funds) and family foundations (giving from one individual or family) are also examples of smaller grantmaking foundations that can provide donations to nonprofits. Corporations may also have their own foundations as well as other means of making donations to nonprofits.
Corporations give money to nonprofits in a variety of ways. Some corporations have their own corporate foundations, which have similar grant-making processes as private foundations. Some corporations will sponsor events or provide in-kind donations for event raffles and auctions.
Cause-related marketing is another form of corporate giving, where companies will offer a portion of proceeds from the sale of an item to a nonprofit. This can also have the benefit of raising awareness about an organization as well as raising funds. Many companies will also make matching gifts when their employees donate to an organization, or will donate funds when their employees volunteer at an organization. Corporate giving can include large national companies as well as smaller local ones.
Many nonprofits rely on local, state or federal grants to fund some of their operations. Nonprofit sectors such as health care, research, education and public media are examples of organizations that often rely on federal funding. If you’re looking for information on government funding, Grants.gov
is an excellent resource; Foundation Directory Online
also now includes information on government grants.
Other Revenue Sources: Fees for Services and Sales of Goods
Many nonprofits charge fees for some of their services. Hospitals bill patients, museums ask for admissions fees, theaters sell tickets, civic organizations charge dues, colleges require tuition and so on. If your nonprofit can charge for some of its services, fees for services can offer a significant revenue stream.
Some nonprofits, particularly larger ones with well-known brands, can rely on the sales of branded goods to bring revenue to the organization. One well-known example of this is the Girl Scouts selling Girl Scout cookies. Other organizations might sell t-shirts, tote bags, mugs, and other items in order to raise funds.
When it comes to raising money for your organization, make sure to have a plan in place that includes a mix of funding sources and opportunities. Relationships with donors, whether they are individuals, foundations, corporations or government funders, take time to develop and need to be cultivated and stewarded. All donors like to feel appreciated and know that their donations are making a difference.