What are the seven sources of nonprofit revenue? Which ones are the best way for your How nonprofit to obtain more money?
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. You and your staff agree. But too often, more nonprofit revenue remains elusive. Did you know that adequate nonprofit revenue is so elusive that most nonprofits end the year in the red?
But that doesn’t have to happen to a nonprofit you love. This article will help you to see your nonprofit income opportunities. It presents the seven key ways that nonprofits earn income. As you read, consider which are you tapping now. Which need more exploring? Have any of these seven streams been dismissed because someone decided the source was impossible or they didn’t like it? To build your income, take a fresh look at these options.
How does a list looking at options help? It helps you to see all of your opportunities, including some you haven’t thought of before. Over the past decade, I’ve helped many nonprofit organizations like yours develop new and enhanced funding streams. When you understand where your opportunities lie, you’re 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. Surprised? Earned mission revenue represents 28 percent of the total of all nonprofit revenue. For health care organizations, this revenue stream 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 session “cleared the fog.” They began to explore additional new earned revenue opportunities and increase their income by 50 percent in the first year. (Read about how Bok Towers Garden did this in the middle of a recession here.)
This second nonprofit income source is donations from individuals. Ideally, individuals give to your organization because they have a passion for your cause 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. Wills or bequests average $70,000.
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.
To explore this funding source, read this guide. The guide outlines the seven drivers of fundraising success and will give you an overview of “the garden” to establish.
This nonprofit funding comes from government sources. These include states, provinces, national governments, and municipalities. This revenue source 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. Here’s a useful model from my research to obtain consistent government nonprofit funding, How to Secure Government Funding for Your Nonprofit. (I discovered this model when I researched and wrote 7 Nonprofit Income Streams.)
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 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 nonprofit 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 second, in essence, individual donors. That is donors who have chosen to use a foundation to give their gifts.
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 similar to the ones most 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.
However, not all grants are worth seeking. Most grant funders receive more applications than they can fund, and grants can be challenging to obtain long-term for operating funds. Check this grant evaluation tool to see if you have identified a source worthy of the time it takes to submit.
Business support arrives via grants, cause marketing, and sponsorship. Big picture, corporate, and business contributions are tiny in terms of nonprofit revenue. However, corporate income represents significant potential funding when talking about 1-2 percent of a 1.5 trillion nonprofit economy. In terms of sponsorship, after you pay for the expenses of the sponsorship, you can use the revenue to fund any needs in your nonprofit.
Business investments accomplish two goals: nonprofit support and enhanced business partner outcomes. Business outcomes are often marketing-related or branding-related.
Most nonprofits can obtain this funding. Potential sources include entities that share your customer, donor, or advocacy base. To obtain this funding and ideas about whom to ask for this revenue, begin by asking which businesses win when we win?
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. Watch: How to Succeed Getting Nonprofit Corporate Sponsors
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. Another group rents out its parking lot during big city events, and the revenue pays for youth field trips. The sources of earned revenue without mission vary greatly. To find it, you’ll want to examine your assets and consider who might value them. Here’s a video about other earned nonprofit income.
You probably already earn other income. It might just be the interest on your bank accounts or soda machine proceeds right now. 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. Here’s an article that helps nonprofits to identify new in-kind sources, In-kind Income Opportunities and Challenges.
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 nonprofit is invaluable. You now understand your options, and it’s time to select your funding streams and get started.
Learn about generating a strategy that includes obtaining the revenue. Read this guide: Nonprofit Strategy 101.
Check Karen’s Nonprofit CEO Library. It’s a collection of resources for nonprofit CEOs and executive directors about nonprofit leadership and revenue opportunities.
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 revenue strategy to help your nonprofit thrive, Schedule a time for a free discovery call here. -Karen