Nonprofit fundraising is a complicated topic and a critical function. Nonprofits are in a unique position from businesses in that they cannot price their products and services to, well, make a profit. Operating budgets must be conceived from other sources than program revenues.
This is a guide focused on fundraising for nonprofits. It will discuss the following major topics:
1. Crafting a nonprofit fundraising strategy
2. Optimizing your organization
3. Kickstarting your donor development
4. Developing your marketing campaign
5. Leveraging grants and other funding opportunities
Before we begin, here is a brief background on funding.
How are nonprofits funded?
The following categories make up the bulk of funding for nonprofits:
Fees for Goods/Services from Private Sources – this is driven largely by hospitals and higher-education nonprofits who charge fees for services, tuition, etc.
Fees for Goods/Services from Government Sources – includes things like Medicare and Medicaid reimbursements
Government Grants – cash awarded to organizations with varying stipulations attached
Private Contributions – charitable donations and grants from private individuals, corporations, etc.
Investment Income – endowments make up a significant portion of income, especially among foundations
Where do donations come from?
Private contributions make up the largest portion of non-program-related revenue streams for nonprofits. These donations totaled $373.25 billion in 2015.
Of this amount, 71% came from individuals, while the rest came from foundation grants, bequests and other corporate philanthropy.
While this represents enormous potential, it brings even more enormous challenges for nonprofits looking to focus marketing and fundraising strategies on specific channels. The need for personal touch with most individual donors makes it hard to scale funding strategies focused on individual donors.
Craft the perfect nonprofit fundraising strategy
Any successful initiative requires a plan. To maximize your organization’s potential, it is important to understand where you are today and define specific paths to where you need to be in the future. A useful strategic plan for your fundraising function will provide a sense of direction for your organization and outline measurable goals to assess progress.
1. Establish a vision
The first thing you want to do is create an ideal version of your organization. Leslie Allen from Front Range Source published a good guide on the topic where she suggests you ask yourself the following questions:
A bit of administrative work should also be done now… specifically setting a budget for how much you wish to spend on this nonprofit fundraising strategy and an implementation timeline that you wish to achieve your goals by.
2. Understand your current state
Describe your organization as it exists today. This will form the foundation for which your strategy will be executed against.
You should take inventory of all the different funding sources you currently use and have used in the past. Try to rank and prioritize the effectiveness and quantity of funds raised from each one. Take note of what’s worked in the past and what hasn’t.
Take an external perspective if possible. If you can afford to audit your organization, do it. If not, be as unbiased as possible in determining how effective your organization performs in this area, and compare it to other organizations. Use either current employees or colleagues from outside the organization to get a picture of how other nonprofits perform.
Understand your strengths and weaknesses! If you are too overly funded by a specific source-let’s say a specific government grant that comes in each year and funds 90% of your budget-you need to address this. Like any business overly concentrated on one customer, you run the risk of being shut down, should the government grant stop.
Don’t limit yourself to single or few funding sources whenever possible. Make your organization invulnerable to things you can’t control.
3. Envision your future state
Use the answers produced in your vision creation to help craft your future state. Where the vision phase is about creating conceptual ideals for what your organization should look like, this phase should be about quantifying them.
Decide exactly what you want to concentrate on. If you decided that a focused nonprofit fundraising strategy was the way to go, make sure to document why it is the best course and what the benefits of this choice will be.
The result of this phase should be a set of goals that you want your organization to achieve.
4. Perform a gap analysis
By quantifying your future state and documenting where you stand today, your next step is to perform a gap analysis. It is critical to understand where all the major gaps are in your organization.
If you have 90% of your revenue coming from one government grant and your future state involves diversifying your revenue streams, then obviously here is a major gap in your strategy.
Always know your organization’s vulnerabilities. Prioritize what you think are the most critical gaps and areas that could produce the most impactful change if they are closed.
5. Connect the dots
The final step requires determining exactly what actions need to be done to achieve your desired state.
Break up the goals into key initiatives. You should ideally come up with a list of projects that can be executed on, each with different rankings for cost, effort, time, and impact.
Create a matrix that assesses each project against these four dimensions and rank the projects according to your priorities. If your strategy needs to be completed quickly with less regard to cost, then rank projects requiring less time higher. If you want the biggest impact of your initiatives, then rank those ones higher, with the understanding it might take longer and cost more than other projects.
Always understand the project management triangle of cost vs. scope vs. time. Any strategic decision will be based on these three constraints. Any change to one constraint necessitates a change in the others. Or else quality suffers.
Be sure to get all the right stakeholders involved in this priority setting process to make sure your strategic alignment matches your organization’s vision and your board’s idea of what needs to be done.
Optimize your organization for change
A common mistake among nonprofits is the lack of a single person who oversees the entire “money function” of the organization. It isn’t enough to have an individual who manages only government contracts, or only individual donors – you absolutely must have someone who oversees all cash flows into the organization.
Development director office
To ensure you hire or promote from within the right candidate for the job, you must be able to offer enough of a salary to entice someone to stay and grow the organization. Check competitive rates of not only nonprofit development directors, but also nonprofit CFOs, for-profit CFOs, etc.
It may be painful trying to come up with the money to pay someone to do this job-which is typically lower than executive director or other high-ranking positions in your organization-but it’s worth it.
You’re paying for people who spend 100% of their time focused on money. And in a few years’ time, they should be paying their own salaries with the work they’ve done to increase your organization’s capacity.
Build a business environment that enables development.
Beyond just funding the salary of your rock-star fundraiser, it is important to give this person authority over creating a team and office within your organization. By choosing the right person, you can ensure that they know exactly how many staff they need and what roles they need to hire to perform specific tasks (marketing plans, technology upgrades, cold calling, etc.).
Additionally, you must budget for costs like software, computer upgrades, marketing collateral, association dues, professional development, and so forth.
You want to create an environment that enables development success. In this way, you help retain top talent that can executive on longer-term strategies that have the highest potential for organizational growth.