The Sources of Revenue and the Methods Used to Raise It
By Joanne Fritz, About.com Guide
What your nonprofit does--your programs--is the highest priority for any nonprofit manager. revenue generation is the second.
New ways for nonprofits to raise revenue spring into existence every year, but where those funds come from stays pretty much the same year after year. There is also a basic inventory of methods that should form the back bone of your fundraising efforts. These are, literally, your "bread and butter."
So, where do nonprofits get their revenue?
- Individuals are the largest source of funding for nonprofit organizations. According to Giving USA, total charitable giving1 in the U.S. reached more than $303 billion in 20092. Of that amount 75% came from individuals.
- Corporations3 give in order to get...exposure, publicity, community respect, market share. Their funding is more episodic, revolving around particular campaigns, events, and projects. Corporate funding can be a good source of support for new initiatives, special programs, and special events. Look for opportunities to form partnerships for sponsorship4s and cause-related marketing5.
- Federal, State and Local Governments6. Many nonprofit institutions benefit from all levels of government. Obvious examples are public education, higher education, and the public media. Federal, state, and local government grants fund many programs provided by nonprofits, especially in areas such as urban human service nonprofits, and healthcare. Grants.gov7 provides up-to-date information and a directory of federal grants.
- Federated Funds8 such as United Ways, United Arts, etc., can be steady sources of relatively large amounts of money. Available only to well established nonprofit organizations.
- Grantmaking Public Charities. These organizations are a cross between a private foundation9 and a charity. They typically receive funding from the general public, government and private foundations. They may do public service, but primarily raise funds and provide grants to charitable nonprofits that provide direct service. You can find many such grantmaking public charities in your local area. Some are associated with an overarching national organization (the Junior League is one such example). Grantmaking public charities file IRS Form 99010 so information about them can be found in many databases, such as at the Foundation Center11 and GuideStar12.
- Foundations come in various sizes and types but their grants13 can be important and substantial.
Private Foundations14 include:
- Corporate Foundations15 are private foundations, but their boards16 are often made up of corporate officers. Their endowment funds are separate from the corporation and they have their own professional staff.
- Family Foundations17 receive endowments from individuals or families. Many large, iconic foundations are family foundations. Think of the Gates Foundation18, the Rockefeller Foundation19, and the Ford Foundation20. These family foundations have endowments in the billions, but most family foundations are much smaller, tend to fund locally, and often have little to no professional staff.
Community Foundations21 are public foundations and pool the assets of many donors. They work to improve their local communities through grant-making, awarding scholarships, and providing services to donors. Community Foundations have become very active in providing donor-advised funds22 for donors who want to become more purposeful in their giving but don't want to set up their own private foundations.
How to Write a Grant Proposal23 |Searching for Grants24 | Online Sources for Grants25 | Finding a Government Grant26 | Grant Writing Tips27
Ongoing Vs Episodic Funding
Besides seeking support from a variety of sources, your fundraising program should seek both ongoing financial support and episodic support.
Ongoing support is usually gained through:
- The Annual Fund28. An annual fund means just that, annual (or more frequent) appeals to a core group of constituents. Such funds are usually unrestricted (available for any use) and may represent a large percentage of your annual income.
- Sales of Products29 and Services30. Some non-profits own stores or provide services that can represent a substantial income stream. The Girl Scouts is one obvious example with its annual sale of Girl Scout cookies, and Goodwill Industries is probably the largest nonprofit retailer. A symphony or theater earns income through the sale of tickets. Earned income must be related to the mission31 of the organization or it can be taxed as unrelated business income32.
- Multi-Year Grants. A grant-giving organization such as a foundation may provide restricted funding33 for a particular project or program, or unrestricted funding to help cover the overhead costs34 of running the organization.
- Endowment Income35. Many large nonprofits, particularly higher education institutions and healthcare organizations build up large endowment funds that produce interest that is used to support the organization.
Episodic funding can come from foundation or corporate grants; special events36; or a bequest37. These funds may be restricted38 to one purpose or devoted to unrestricted use by the nonprofit.
Two Special Types of Fundraising
Two types of funding fall outside the scope of ongoing and episodic methods and include a wide range of sources.
- The Capital Campaign39. A capital campaign is a multi-year fundraising campaign with a particular goal such as:
- funding a new building.
- raising funds for a particular project, such as cancer research.
- increasing a particular asset such as an endowment40.
- Planned Giving41. Most nonprofits now have planned giving programs which enable a donor to confer a gift at the time of his/her death; or to give a large gift immediately while receiving income during the donor's life.
A good fundraising plan42 will include a balance of these techniques and sources. Establishing unrestricted, ongoing funding is the most important, followed by other funding that will grow the organization and ensure its future.
Use this Chart of Income for a Nonprofit43 to track your organization's income by amount, type, and percentage of total income.
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