Why Nonprofits Need to Broaden Their Funding Horizons | npENGAGE

Why Nonprofits Need to Broaden Their Funding Horizons

By on Nov 19, 2018

Tagged:    

This piece originally appeared in The Right Mix: How Diverse Income Models Influence Giving by the Blackbaud Institute for Philanthropic Impact. Download the full report to learn how to develop a stable, sustainable, and supported organization.  

For all the attention paid to how nonprofits raise funds, there is very little public understanding about the practice of fundraising and the various income streams nonprofits rely on. There are widespread notions that fundraising is a necessary evil, or that dollars spent on fundraising are being diverted from the organization’s work. This is a dangerous mischaracterization of the role that fundraising plays in supporting and sustaining the work of the nonprofit sector.  

Here’s the truth: 

  • Nonprofits depend on charitable support. According to the National Center for Charitable Statistics®, charitable donations underwrite 23%—almost a quarter—of all nonprofit expenses; that percentage increases to 51% when you include only those organizations with budgets of $10 million or less. There is no question that without charitable dollars, nonprofit organizations could not fund their missions and work. 
  • Fundraising is the practice of securing charitable gifts. While it’s true that some donations are made without fundraising outreach, the vast majority of charitable gifts are made by donors as a result of being asked, which makes the practice of fundraising essential for organizations to survive.  
  • Fundraising is an ongoing and continuous effort. A study by the Urban Institute® and the Association of Fundraising Professionals® found that in a one-year period, 96 donors were lost for every 100 donors gained. In pure dollars, this meant that $4.695 billion new (or increased) dollars were raised to help cover the $4.264 billion lost due to donor attrition.1 To fuel growth, or even to keep pace with current needs, organizations must continue to invest in fundraising efforts to support their programs. 

At BoardSource, we understand there are real risks to underinvesting in fundraising, including the possibility of becoming overdependent on a small number of donors. Through the “Measuring Fundraising Effectiveness” framework we created with GuideStar®, BBB Wise Giving Alliance®, and the Association of Fundraising Professionals, we formed a way for nonprofit board and staff members to quantify the risk associated with a lack of diversification—what we refer to as the Dependency Quotient. 

It’s a very simple concept that invites organizations to consider this question: What percentage of our operating budget would be left unfunded if we lost our organization’s top five donors? 

For some organizations, this question reveals tremendous vulnerability and fragility. Without their top five donors, they would cease to exist. For others, it documents that a change in the giving of one donor—or even five—would be unlikely to create organizational distress. 

The defining difference between these two realities is what this report is all about: investing in a smart, strategic, and diversified approach to fundraising. 

There is no question that it takes time, effort, and—yes—money to build a strong and resilient fundraising program. But the fact is that investments in fundraising should be made not despite our need to fund our missions and work, but because of it.

 

nonprofit fundraising

ABOUT THE AUTHOR

Anne has 20 years of executive leadership experience in the nonprofit sector and was appointed President & CEO of BoardSource in 2013. BoardSource is an organization that trains and educates nonprofit leaders at the highest level – the board – providing tools, resources, and research data to increase board effectiveness and strengthen organizational impact. Under her leadership BoardSource has expanded its voice and built a scalable model of program delivery that has resulted in a more than 200 percent growth in the number of leaders served.

She played an instrumental role in the launch of several new leadership initiatives including the Stand for Your Mission campaign. Anne also has deep expertise in fundraising strategy and leveraging the board’s fundraising role.

Anne has been honored as one of The Nonprofit Times’ “Power & Influence Top 50.”

Comments (44)

  • Karen says:

    Great points to focus on!! Thank you.

  • Cammi Derr says:

    Would love to broaden the horizons, but we are still going through the pains of moving our gift officers to a new way of thinking. Buy-in is tough sometimes.

  • Gavin Mann says:

    This is even more relevant in the UK following GDPR and looking ahead to Brexit and (in my sector) the changes to teachers pensions which is going to hit independent schools hard next year.

  • r.s. says:

    Great points. Some places I’ve worked, one top donor accounted for 30-50% of the annual giving.

  • KaLeigh says:

    I can’t stress “fundraising is an ongoing and continuous effort” enough! Great points.

  • Karen Stuhlfeier says:

    Good advice!

  • Angie Stumpo says:

    Great points!

  • Stephanie Boyce says:

    Some really good points in here!

  • Courtney says:

    Thanks for sharing! Great reminders!

  • Gillian Armstrong says:

    What an interesting thought of what would happen if your top 5 donors disappeared. That should motivate us all even more.

  • Lisa says:

    Losing your top 5 donors should make everyone pause. Diversify and stop going to the same well.

  • Sunshine Watson says:

    Always cultivating!

  • Julie says:

    Thank you for sharing. We really do need to think of the ways in which we reach our donors. Change can be hard for those who have been in the fundraising business for awhile, but critical to continued success. Love the line, “What percentage of our operating budget would be left unfunded if we lost our organization’s top five donors?” Very though provoking.

  • Linda McMillan says:

    This is a difficult lessons for start-up nonprofits to understand. Fundraising is hard work!

  • Maggi Junor says:

    We have been trying to diversify but it is tough when you are so small.

  • Mary Sommer says:

    Our percentages are slightly different, but still focused on a narrow band of support.

  • Steve Walsh says:

    Ongoing donor cultivation/engagement is a must for any organization that wants to succeed and grow.

  • Stephanie Crawley says:

    Yikes. That question leaves me shaking in my boots.

  • Sage says:

    Excellent focus points!

  • Shelly Gammieri says:

    Nice! This is like a wake-up-call to check on the diversification. Thank you so much!

  • Carlene says:

    Great insight!

  • Claudia says:

    Really good focus points…losing your top five donors…oh the nightmares

  • Veronica says:

    Good article. Thank you!

  • Jenny says:

    Thanks for giving me something to think about!

  • Alicia Barevich says:

    So important!

  • Brett Chapman says:

    Interesting and very relevant!

  • Heather says:

    Interesting read, and very relevant to my current office. Thanks!

  • Sandra Ross says:

    Yes, this is a question we need to answer!

  • George Buss says:

    If we lost our top 5 donors, we would have to lock the doors. It’s a sobering thought. Not only should we see this as important to the work, but also a part of all of our work. While not every staff member may make the ask, all are building relationships and moving forward a mission worth funding.

  • Julie Ann says:

    Thank you for spreading the word that fundraising is not a dirty word!

  • Gwen says:

    Great points! The strategy definitely needs to be smart to retain existing donors while acquiring new one. Thank you for sharing!

  • Linda Mikelson says:

    Thank you for sharing, great points.

  • JK says:

    This is a great article. A nonprofit can’t rely on the same people to meet the same goals.

  • Jimmy says:

    Great article, now I’m frightened to look at our Lost Donors compared to New Donors on a dollar to dollar perspective!

  • Stacie D says:

    This may be a question that is too complex to answer, but I would ask why the large loss to begin with – 96 lost for every 100? Does it have to do with lack of stewardship? Or were these donors that didn’t have a strong affinity to begin with? Just as much as I agree with diversifying, I also think that there needs to be focus on understanding why different donor populations give to our organization and then ensure that we’re meeting their needs in order to retain them.

  • Anna Patty says:

    Thanks for sharing

  • Tiffany Dorsey says:

    This is something we started addressing a couple of years ago. We realized that a lot of unrestricted dollars were raised from a small number of donors and those donors were aging.
    We now have a growing group of donors that give a yearly major gift that is much more sustainable.

  • Jenn says:

    I’ve not thought about it this way. Makes me want to take a deeper dive into our database 🙂

  • Amy Dana says:

    What percentage of our operating budget would be left unfunded if we lost our organization’s top five donors? – Interesting question. Also a little frightening.

  • Sarah says:

    Great points, thank you!

  • Jeff says:

    Thank you for sharing!

  • Donna Clute says:

    Very thought provoking

  • Brittany Ivey says:

    Such a tough truth. Thank you for sharing!

  • Erin Parks says:

    Wow… calculating what percent our top 5 donors represent of all our donors (.1%) and then calculating how much of our total individual funds received was both eye-opening and scary. Thank you for this perspective that will definitely shape our fundraising plan moving forward.

Leave a Reply to Brett Chapman Cancel Comment

Your email address will not be published. Required fields are marked *

Get Updates

Get nonprofit articles, best practice advice, fundraising ideas and invaluable industry reports and webinars delivered for free!