What are the sources of nonprofit revenue? How can your nonprofit earn more money?
Alice … “Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
Every year trillions of revenue dollars pass through the books of nonprofit organizations. Your board would like more of this nonprofit funding to enter your coffers.
This article will help you to see your opportunities. It presents the seven key ways that nonprofits earn income for their mission. Which are you tapping? Which have you dismissed because years ago, someone decided the source was impossible?
Does a list like this help? Yes. Over the past decade, I’ve helped many nonprofit organizations to develop new and enhanced funding streams. When you understand where your opportunities lie, you are in an ideal position to make the most of them.
Nonprofits receive this income for services they provide related to their mission. Nonprofit housing organizations charge rent. Theaters charge patrons for tickets. Riders pay fees based on mileage.
Mission income is the largest nonprofit revenue source, with 28 percent of the total. For health care organizations, mission revenue is almost 40 percent. Practically every organization has opportunities to earn mission income, even if you now only provide free services.
For example, I helped a client develop a viable mission income concept to offer critical data to new customers in one session with a never-charged-a-fee organization. This concept helped them “clear the fog,” and they began to explore additional new earned revenue opportunities.
This income source is donations from individuals. Ideally, individuals give to your organization because they have a passion for your cause, the ability to give, and a relationship with you. Donor income includes everything from the check your board member writes, to special event revenue (above and beyond the cost of your gala dinner), to the stocks from Mrs. Bates’ will.
Income from individuals represents the largest source of donated revenue nonprofits receive. Yet, this is only 16 to 29 percent of all nonprofit revenues. Nonprofits that successfully grow donor income make an ongoing commitment to a donor community. Donor development is akin to gardening. You plant seeds now, nurture them as they become seedlings, and harvest later. All nonprofits, under their 501(c)(3) status, can accept individual donations.
Government funding comes from direct government sources, like states, provinces, national governments, and municipalities. This source also includes quasi-government agencies, like water management districts and arts councils that redistribute tax dollars.
Successfully receiving government funds is a result of competitive grant applications, requesting proposals, and obtaining earmarks. Government funds constitute 21-30 percent of nonprofit income.
A client recently snagged $100,000 in new government funding based on the organization’s past high-quality service. Most, but not all nonprofits, can receive government revenue. Exceptions include faith-based groups that proselytize and groups that represent out-of-favor and controversial issues. If most voters don’t like what you do, government funding will be tough for you to obtain.
While foundation funding represents only a small portion of nonprofit income –some 2-4 percent, this revenue’s importance is greater than the numbers indicate. Foundation gifts pay for a lot of nonprofit research and development opportunities. Foundation funding, at its best, reduces new venture risk. Around 100,000 foundations exist in the United States. These range from the vast name-brand foundations, like Ford, Rockefeller, and Gates, who own large assets, to the small family foundations. The majority of foundations are the latter, in essence, individual donors.
How does foundation funding work? For example, a local foundation funds a technology upgrade at a nonprofit for around $40,000. The resources allow the nonprofit to provide additional service equal to one staff member without increasing staff.
This income category also includes organizations that give grants, like the Junior League, Kiwanis Club, and congregations. They’re included here because they use an application process akin to those foundations use. Almost all nonprofit organizations can access this type of funding. Fifty percent of your success in this area involves identifying groups that care about your cause in your location. Replicable ideas can provide you access to national and international foundations.
Business support arrives via grants, cause marketing, and sponsorship. Big picture, corporate, and business contributions are tiny in terms of nonprofit revenue. However, when you talk about 1-2 percent of a 1.5 trillion nonprofit economy, corporate income represents significant potential funding.
Business investments accomplish two goals: nonprofit support and enhanced business partner outcomes. Business outcomes are often marketing-related. Most nonprofits can obtain this funding. Potential sources include entities that share your customer, donor, or advocacy base.
When you seek this funding, consider large corporations like Target, Best Buy, and American Express. Don’t forget your local print shop and regional stores and services. Don’t forget new businesses. Recent research by Ernst & Young and the Fidelity Charitable Gift Fund found that entrepreneurs donated two times more profits than older firms.
The sixth source of income is a catchall “other income” category. It represents 10 to 16 percent of all nonprofit income. Other income includes everything from candy sales, tent rentals, and consignment store revenue to the sale of your old van. A Tampa Bay group rents a room in their facility that nets $200,000 in yearly income.
You probably already earn other income, even if it is just the interest on your bank accounts or soda machine proceeds. All nonprofits can earn this revenue.
This final income source is not money. However, it acts like money. In-kind resources include goods and services that a nonprofit receives at low or no cost. We include it in our list of seven magic sources because of its budget power. In-kind includes everything from donations of dog food to the humane society, a free event speaker, and the website savvy board member who maintains your website.
Also, include your partnerships in this category. While they usually do not provide cash, they can save money while providing essential resources. Partnership benefits include everything from the referrals you receive (instead of marketing your services) to the opportunity gained through long-term alliances and mergers.
In-kind frees up cash for items that require it, like payroll taxes. In-kind is available to nearly all nonprofits. You obtain it from corporations, individuals, and governments. Your potential in-kind support is limited only by creativity, the relationships you build, and asking.
Yes. You can solve your income challenges with creative thought and work. Each of the seven income sources has possibilities and challenges. All require effort, insider knowledge, and investment. While not easy, finding ways to sustain and grow your organization is invaluable. You now understand your options, and it’s time to select your ideal funding streams.
Learn about generating a strategy that includes obtaining the revenue you need by reading this guide, Nonprofit Strategy 101.
Check out Karen’s CEO Solutions Library, a collection of resources for nonprofit CEOs and executive directors to answer your questions about nonprofit leadership issues.
If you want to know even more about growing nonprofit revenue, please don’t hesitate to reach out. I’d love to help you create a dynamic strategy to help your nonprofit thrive, Schedule a time for a free discovery chat here. -Karen