Purging Errors, Misinformation, and Hearsay about Nonprofit Income

Your Ingenious Nonprofit
March 2015
Karen Eber Davis

On the overhead screen, a pie chart illustrated how the nonprofit sector earns cash. In the audience, 70 people were guessing which income source represented the largest slice. The room was filled with CEOs, senior staff, students, and professors who taught nonprofit master level classes. When they were ready, I listed each category and asked which was most important. Only four people got it right. I’ve repeated this exercise at many presentations with similar results.

Much misinformation exists about nonprofit income. It exists outside the sector, among the general public. It creeps into the thinking of boards and donors. It resides deep within the sector in groups where I present. In contrast in ingenious nonprofits, I consistently find solid revenue knowledge—even if they don’t label the streams the same as in 7 Nonprofit Income Streams. Ingenious leaders know how their missions are funded, their salaries paid, and why others provide money. The ingenious work with facts.

Does success breeds clarity, or does clarity breed success? It’s the latter. Does clarity really make that much difference? Yes. If you fear drowning, and many nonprofits do, it matters if you swim toward the big island or the rock that submerges at high tide. You do great work. You deserve income to do it.

What Does Hearsay Cost?
A lot. Half-truths and errors about income lead many to spend inordinate amounts of resources chasing low-return opportunities, such as grants or donations from community leaders with full dance cards. Misinformation is at the heart of high development director turnover rates. It prevails in the thinking of discouraged nonprofits—they believe that nothing they do will provide adequate income. Every quarter I receive multiple grant writing requests. Most come from groups that believe grants represent their secret solution to success. For those willing, I help them use grants as a tool to tap other revenue streams and to improve their infrastructure. Grants almost universally work best as “accessories.” They make you look wonderful, but don’t cover basics, such as salaries and utilities.

If it is your goal to be a sustainable and ingenious nonprofit, start with facts. (And if it’s not your goal, why not?) Remove misinformation. Help people to challenge hearsay by asking for the whole story. Here are seven common fallacies to eradicate.

  • Let’s get a grant for that. Also known as the PBS challenge. Everyone hears large foundations being credited for support on PBS and other venues. They forget the conclusion of these announcements, which thank “viewers like you.” They refer to individual donors—the largest source of donated People get excited when they learn that 100,000 grant sources exist. They forget that their grants fund 1.7 million nonprofits in North America plus NGOs elsewhere. Is it possible that you’re already receiving your fair share of grant income?
  • The biggest source of nonprofit income is individual donations. Mission earned income, the sales of products and services related to your mission, provide the sector’s largest revenue source. It’s almost twice as large as individual donations even including bequests.
  • Bequests are best. You know that bequests average $70,000. They are lovely and available to all nonprofits that consistently seek them over time, i.e., plan on seven years to see a harvest. But are they best? Not when you consider that it’s the final gift you’ll get from that individual.
  • People will fund your wants. Donors and customers seek to obtain what they They provide nonprofits income to solve their personal objectives—which, when you show them how your goals overlap, means resources for you. We are hardwired to help, but we do it to meet our personal objectives.
  • You can believe what the popular press writes about nonprofits. A notice appeared in today’s paper that a nonprofit netted $25,000 on a new event that grossed $100,000. Standard sector guidelines recommend net earnings of $50,000 on special event, so while the event raised funds, it’s not a model to emulate. Large gifts make headlines, but the investment and back-stories remain untold.
  • We’ll have success just like them. Maybe not. For individual donations, some groups start with superior advantages, such as universities, hospitals, and the performing arts. Here donor cultivation events can be created whenever they open their doors. While all groups can benefit from seeking individual donations, some experience a distinctly easier times filling their pipeline with potential donors.
  • Low overhead is Critical. I’ve written elsewhere about how for many nonprofits overhead is too low, not too high. Except in the most egregious cases, evaluating nonprofits by their overhead rate is useless. Nonetheless, many nonprofits experience overhead strangulation since the measurement still continues to hold sway in and outside the sector.

Know What You Know
Even when you know the facts, it can be hard to blow up misinformation. In the movie, The Hunt for Red October, hero Ryan has an epiphany that the captain of a Russian submarine is defecting—even though it looks like he’s preparing to attack. Ryan blurts the insight in the middle of a meeting with of top military brass. It doesn’t sit well. When Ryan stands his ground a multiple-star general attacks, “What do you know, you’re only an analyst?” To override similar resistance, provide proof.

As a nonprofit insider, even if you get some questions wrong, you understand much about nonprofits and income generation. You recognize it’s harder than it looks. You understand the importance of relationships. You know that sometimes time can do what words can’t. It is time to recognize what income confusion costs. Your work is too important to lack income to do it. Share the facts and stand your ground.

To fill the void made by removing misinformation, hearsay, and errors, your leaders need solid information about how to create a sustainable revenue strategy. With your staff and board, read Seven Nonprofit Income Streams. Like other readers, you’ll see new income opportunities and learn how to create the sustainable income your mission needs.

© 2015 Karen Eber Davis Consulting. All rights reserved.