Where Do Nonprofits Get Their Revenue?

Multiple Streams of Income Means More Stability

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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 fundamental inventory of methods that should form the backbone of your fundraising efforts. These are, literally, your "bread and butter."

Nonprofits fund their programs with a basket of income streams, such as:

  • Self-Generated Fees for Services.

    Even though the first thing that comes to mind when we think of nonprofits is the donations that most of us give to our favorite charities, the bulk of the income for the charitable sector comes from fees for services rendered and the sale of products.

    Just think of a university, for instance, that generates income from tuition or a public hospital that charges patients (or their insurance companies) for the services given. Such nonprofits might also receive income from government contracts and fees, and legislated support from taxpayers.

    A public university, for example, is in great part supported by the taxpayers in that particular state. That university also sells products through its bookstore and tickets to artistic and athletic venues, while the hospital maintains a gift shop and likely provides community services for which it charges.

    According to the National Center for Charitable Statistics, such income sources provided close to three-quarters of the revenue in the nonprofit sector in 2010.

  • Charitable Contributions.

    Although the total income for nonprofits comes from an assortment of sources, of which contributions are but a part, individuals are the largest source of charitable donations for nonprofit organizations.

    According to Giving USA, total charitable giving in the U.S. reached more than $298.4 billion in 2011. Of that amount, 73% came from individuals. The rest of the philanthropic pie is made up of government and foundations grants, bequests, and corporate philanthropy.

  • Corporate Philanthropy. Corporate philanthropy has come to be an integral part of the identity of most large corporations and many smaller businesses as well. CSR (corporate social responsibility) has become more important as consumers have become more likely to buy from socially responsible companies.


    Corporate funding can be a long-term commitment to certain causes and the charities connected to them, or corporate funding can be more episodic and market driven, revolving around particular campaigns, events, and projects.

    Corporate funding can be a good source of support for new initiatives, special programs, and special events. Nonprofits increasingly look for opportunities to form partnerships for sponsorships and cause-related marketing.

    Companies also often help their employees give to charities and even match those contributions. Employee volunteer programs are popular, and there are even grants tied to employee volunteer hours.

  • Federal, State and Local Governments. 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.gov provides up-to-date information and a directory of federal grants.
  • Federated Funds such as United Ways, United Arts, and community funds can be steady sources of relatively large amounts of money.  Federated funds have traditionally thrived because they were the staples of employee giving at companies. Today, they have become less popular as new ways of employee giving have been established and as younger donors seek to be more involved with the charities they give to.
  • Grantmaking Public Charities. These organizations are a cross between a private foundation 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 990 so information about them can be found in many databases, such as at the Foundation Center and GuideStar.
  • Foundations come in various sizes and types, but their grants can be important and substantial. The most common types of foundations are::
     

    Corporate Foundations are private foundations, but their boards are often made up of corporate officers. Their endowment funds are separate from the corporation, and they have their own professional staff.

    Family Foundations receive endowments from individuals or families. Many large, iconic foundations are family foundations. Think of the Gates Foundation, the Rockefeller Foundation, and the Ford Foundation. 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 Foundations 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 funds for donors who want to become more purposeful in their giving but don't want to set up their own private foundations. Community foundations today often organize giving days to help local nonprofits raise funds.

Ongoing vs. Episodic Funding

Besides seeking support from a variety of sources, your fundraising program should find both ongoing financial support and episodic support.

Ongoing support is usually gained through:

  • The Annual Fund. 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 significant percentage of your annual income.
  • Sales of Products and Services. Some nonprofits 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 mission of the organization, or it can be taxed as unrelated business income.
  • Multi-Year Grants. A grant-giving organization such as a foundation may provide restricted funding for a particular project or program or unrestricted funding to help cover the overhead costs of running the organization.
  • Endowment Income. Many large nonprofits, particularly higher education institutions and healthcare organizations build up large endowment funds that produce interest that is used to support their programs.

Episodic funding can come from foundation or corporate grants, special events, or a bequest. These funds may be restricted to one purpose or devoted to unrestricted use by the nonprofit.

Two Special Types of Fundraising


The Capital Campaign

A capital campaign is a time-limited effort by a nonprofit organization to raise significant dollars for a particular project, such as:

  • Funding a new building.
  • Raising funds for a specific project, such as cancer research.
  • Increasing a particular asset such as an endowment.

Capital campaigns have a beginning and an end but often span several years. A capital campaign employs all the usual means of raising funds such as direct mail and direct solicitation. Capital campaigns require extraordinary preparation and skillful execution.

Planned Giving.

Most nonprofits now have planned giving programs that help donors to include their favorite cause in their wills or estate planning. The charitable gift annuity has become quite popular among many donors as it allows many tax advantages while providing income during the donor's lifetime.

A good fundraising plan 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.

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