Why Nonprofits Need to Broaden Their Funding Horizons
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.