Whenever I hear the question of sustainability raised by nonprofit boards and CEOs, it usually reflects a concern about not having sufficient, stable sources of revenue to meet the operating expenses of the organization. Obviously, continuing annual losses in operations will inevitably lead to organizational demise if balance between revenue and expense can’t be achieved. Because nonprofit charities which rely on government funding have virtually no control over the rates at which they are reimbursed for services, other “non-operating” sources of revenue have to be sought.
On the assumption that nonprofit organizations are doing their best to control expenses – a subject best left for another blog post – the concern about sustainability most often gets expressed by CEOs in terms of ramping up fund raising efforts. Four general strategies seem to emerge from the dialogue: 1) hire a grant writer, 2) hire a congregation relations director, or 3) launch a major gift fund raising campaign, or 4) hold more fund raising events. There are a number of problems with thinking that any or all of these fund raising strategies is the goose that will eventually lay the golden egg.
First, with respect to grant writing, there are more nonprofit organizations today seeking more dollars from about the same number of foundations. Among the 1.5 million nonprofit organizations in the U.S., about 950,000 are classified as “public charities,” that is, those organizations serving families, children, people with disabilities, aging, as well as educational and health care related organizations. This number is up over 20% from a decade ago and represents 67% of all nonprofit organizations, up from 57% in 2003 (National Center for Charitable Statistics, 2013 Report). And while the assets of foundations have shown modest growth, that is due almost entirely to the improved economy and the stock market. In other words, it is not due to an increase in the number of foundations or to significant amounts of new investment in those foundations. That isn’t to say that effective grant writing to sympathetic foundations shouldn’t be pursued. It is only to point out the increased competition for funds from an asset pool that has not shown much growth.
Another problem with reliance on grant money comes from the fact that most grants are written around specific projects or programs. In other words, very few foundations fund grant requests for operating revenue. They are looking for high-impact projects with measurable results. While this may be a way for an organization to jump start a new program or service, or help with building or expanding needed facilities, it is not generally a viable option for increasing general operating revenue. In fact, I have seen numerous instances in which a grant-funded project required additional organizational resources to maintain, and once completed, was not financially sustainable.
The second flawed strategy is the notion that nonprofit organizations which had their roots in faith communities should further engage those churches or synagogues to increase their financial support. For a variety of reasons mostly having to do with accepting government funding, nonprofit charitable organizations have grown far beyond the capacity of churches to support them. While many faith-based organizations had their origins in one or more local congregations, most nonprofit agencies of this type have long since moved beyond relying on limited dollars from the members of those churches. In this case again, the statistics tell the tale. Mainline and traditional denominations have experienced precipitous declines in membership over the past four decades. Why some nonprofit leaders think that greater engagement of congregations in the mission of the organization is going to generate more revenue at a time when those churches are experiencing their own budget declines due to membership losses is a mystery to me. And if greater engagement with congregations is intended to identify potential donors from within the membership rosters, well, I have seen firsthand how defensive some pastors can get when it comes to soliciting funds from their members.
The third faulty idea is the notion that if you just hire the right fund raising professional to launch a major gift fundraising campaign, long term sustainability can be achieved. I have nothing against hiring the best available fund-raising professionals, but resource development is a long term, incremental, and complicated process. Identifying, informing, cultivating, engaging and eventually soliciting major donors takes place in the context of a long-term, trusting relationship between the donor and a significant representative of the organization – usually the CEO. Also, major gifts are rarely the first gifts given by a donor. They are the result of numerous other giving opportunities that have been developed and expanded over many years. These might include event support, responding to direct mail, becoming a regular contributor to the annual fund, and participating in other intermediate giving vehicles such as charitable gift annuities or creating a charitable remainder trust. Arriving at the point where a donor can be solicited for a major gift, and hopefully a planned estate gift, takes more time than is available to an organization that is already experiencing budget stress.
Another factor to consider is that major gift campaigns are not always the best way to generate revenue for ongoing operating needs. Major giving campaigns certainly may contain aspects of operating support, but are usually directed at bigger and more “sexy” initiatives such as capital projects, scholarship funds, program launches, or new market startups.
And for smaller organizations that depend on annual fundraising events such as banquets, golf outings, rummage sales, etc., simply holding more events would seem to make sense. But does it? I have seen first hand the time and effort it takes to mount a successful fund raising event. These tend to be exhausting to staff and rarely generate the net profit that justifies the time and effort. That’s not to say that events shouldn’t be held as part of a comprehensive fund raising program. I am personally familiar with two very successful private schools in Milwaukee that raise considerable revenues through their events. They would be crazy to discontinue these events. But if anyone suggested that holding two such events per year would double the revenue…well, I think the staff would laugh as they walked out the door.
Instead, fund raising events should not be thought of exclusively as vehicles for raising money, but also as means to engage and cultivate potential donors. Good fund raising professionals know that events can play a significant role in donor development. But these are generally considered entry level activities to attract new supporters. The real key to resource development is to follow up on event attendance and begin to develop a personal relationship with attendees and donors.
So, if there are limitations to these traditional forms of fund raising, where can additional revenues be found to help ensure mission sustainability? Let me give you a short list of some of the ways nonprofit organizations can diversify their sources of revenue:
- Supporting foundation
- Enterprise ventures
- Alternative energy
- Online giving
- Monetizing existing assets, e.g., real estate
- Strategic collaboration
- Fees for services
- Government contracts
I’ll start to explain these in more detail in my next blog post, so stay tuned! I also plan to share some good information with you about looking at the expense side of the budget as well. In future posts I will share some strategies for making tough priority decisions related to program viability and relate these to building a strategic vision for sustainability and growth.
Have questions or comments? Feel free to respond.
