Fundraising: To Diversify or not to Diversify?
There are five major types of nonprofit revenue streams. Here’s how to know when to diversify your investments.
Let me know if you’re feeling this way. Lately, it seems many nonprofits are feeling like they’re stretched beyond capacity but still falling short of fundraising goals.
It has some fundraising teams considering diversifying revenue streams. The thought is that it may help meet the needs of our organizations while staving off burnout among our teammates.
Some nonprofits typically rely on a combination of funding sources to fuel their missions. Meanwhile, other places put a greater emphasis on one area. For example, focusing more on individual donors, or government grants, or a fee for services model to fund the bulk of their missions.
Many leaders of aspiring nonprofits make diversifying fundraising one of their top objectives. It seems sensible. For example, if we hit a recession and individual-giving stalls out, sponsorships can mitigate risk. When corporate dollars dry up, government contracts or foundations can provide stability and options.
How do we know when to diversify fundraising or invest more in an existing revenue stream?
Here’s how to know:
Think of the stock market. Stocks are typically high reward and high risk. Bonds typically yield slow and steady growth. If we’re talking about a 401K, any decent financial investor will say you want to have a balance of the two.
Small Nonprofits ($1M or so and below): Think of your organization as stock. The potential for creating social change and helping people is high but so is the risk of surviving or not. Organizations this size have fewer resources. The fundraising strategy should be a bond. The temptation is to try all sorts of fundraising tactics to see what works. I’ve been there. However, we need to lean on our tried and true supporters and create strong relationships. This means it’s OK to operate on the skirts of our intended mission because securing the funding and more importantly, the stability of our organizations is critical. It will also result in a greater investment in the core mission in the years to come.
Large Nonprofits ($10M and above): Organizations this size and most definitely ones that meet Charity Navigator’s standards for “super-sized” at $50M, can think of their organizations as bonds. They’re safe and secure. By the way, only about 5.5 percent of all nonprofits are in this range and the “super-sized” range make up less than half of one percent. These organizations can more easily afford experimentation and diversification by trying high risk / high reward fundraising mechanisms like streaming content and gaming, investing in a team of grant writers to secure government contracts, or try selling services far below what corporations can do.
Mid-size Nonprofits (around $5M and up to $10M): If our organizations are in this range, statistically we've gotten past most obstacles. In fact, if we’ve surpassed $1M in annual fundraising, it’s a win. An astounding 80 percent of nonprofits don’t reach past $1M. But here’s the problem and I’ve experienced this first hand at ZERO. Mid-sized nonprofits look at titan-sized organizations like the Red Cross, Girl Scouts of America, or the Salvation Army and we aspire to be like them. Mid-size nonprofits think of themselves as small (or a stock and still volatile in comparison to the titans) but we try to behave like the titans by trying new methods but end up overextending by putting a fundraising plan in place that is too diversified. When we do this, it over-taxes our resources and our span of control in growing the organization. Over the decades, Stanford and Bridgespan (places filled with people much smarter than I am) have crunched the data. While diversification seems like a good idea, most organizations that have gotten big over the last 50 years have done so by focusing on single engine growth and heavyweight stability. In other words, mid-sized nonprofits are better off sticking with the type of funding source (individual giving, sponsorships, fee for service, or grants) they strongly believe is most viable over the long term or the one that got them to where they are today.
