5 Ways to Diversify Your Nonprofit's Revenue Streams
Click here to read on NonProfitPRO
by Aly Sterling
In 2020, nonprofit professionals have needed to adapt to unexpected circumstances and learn new approaches. You've adjusted campaign goals, settled into work-from-home routines and engaged with donors from a distance.
Even with all these changes, the fundamentals of fundraising remain the same. In fact, during periods of economic uncertainty, a strong foundation is more important than ever. COVID-19 has underscored the ever present need for stewardship, a compelling case for support and a sound internal structure, just to name a few.
One back-to-basics principle that is especially worth revisiting now is the idea of diversifying your nonprofit's revenue stream. If you depend on the contributions of just a few major grants or donors, you'll be far more vulnerable in the wake of a crisis — as many fundraising managers have recently learned the hard way.
Instead, you should spread your efforts across several avenues of funding. This will ensure that if one stream dries up, you'll have other viable sources for your mission.
Let's explore some of the top ways to diversify your revenue stream:
- Conduct prospect research to find potential new major donors.
- Consider donor-advised funds.
- Explore corporate giving opportunities.
- Strengthen your grant-seeking approach.
- Cultivate intentional relationships with donors.
When considering these recommended strategies, keep in mind that you aren't trying to choose one over the other. A sustainable nonprofit will pursue all of these methods (and more) in tandem to avoid keeping too many fundraising eggs in one basket.
Credit: Aly Sterling
Conduct Prospect Research to Find Potential New Major Donors
While it's risky to count on a small handful of donors for your entire fundraising strategy, major gifts should still be a key component of your revenue streams. Just be sure to consider this tip in conjunction with the others and try to widen your major donor pool as much as possible.
A sustainable major gift strategy requires strong stewardship initiatives (which we'll discuss more later on), both to engage current donors and set the groundwork for future fundraising asks.
But before you can make headway in the cultivation process, you first need to identify individuals with the potential to make major gifts. The best way to do this is through prospect research.
When considering which of your donors may have the capacity to make a contribution, remember that actions speak louder than words. Look at historical data and background information to make your assessment.
You'll want to consider data points including:
- Wealth indicators. These markers help clarify a donor's financial capacity to give. These include real estate ownership, stock holdings, business affiliations and past records of political contributions.
- Philanthropic indicators. This data signals a donor's warmth toward your organization. These indicators include past donations to your nonprofit and other organizations, volunteer history and information about hobbies and interests.
With this information to support your efforts, you'll be well positioned to prioritize outreach and solicit new major gifts.
Depending on the size and capacity of your development team, you may want to consider hiring a prospect research screening service or nonprofit consultant. That way, you'll ensure you aren't missing any critical information.
Credit: Aly Sterling
Consider Donor-Advised Funds
A donor-advised fund (often abbreviated as DAF) is a giving vehicle that holds charitable assets for future contributions. Essentially, individuals can make a donation into an account that is managed by a sponsoring organization, often a financial service company or a community foundation. Contributions grow over time so that, down the road, the donor can recommend when and where to direct the gift.
Donors have many sponsoring organizations to choose from to best fit their needs, but there are three main categories. The main types of DAF sponsors are:
- Community foundation sponsors. Faith-based and community foundations were the first public charities to sponsor DAFs, starting back in the 1930s. Since this type of DAF sponsor will have a strong background on local community needs, it makes sense for donors who want to focus on grassroots or regional charities rather than a national organization.
- Single-issue sponsors. Also known as affinity group DAF sponsors, these organizations allow you to recommend contributions to a specific cause. This type of sponsor may focus on a large national issue like climate change or women's health. If the DAF sponsor is an academic institution, it may stipulate that part of the fund is designated to the school.
- Commercial sponsors. Sometimes called national DAF sponsors, these are typically the charitable arms of large financial institutions, such as Fidelity Charitable. This type of sponsor is both the most common and the most flexible. Usually, commercial DAF sponsors have much lower contribution requirements than single-issue or community foundation sponsors, so they are accessible to a wider range of donors.
As this guide explains, donor-advised funds currently only make up 6% of total giving, but it's one of the fastest-growing forms of philanthropy. And for good reason! They're a useful giving option for both donors and nonprofits.
DAFs are attractive to donors because they allow for immediate tax deductions and can accept non-cash assets like stock holdings and even Bitcoin. It's also a relatively hands-off approach, which can appeal to busy donors. Most importantly, however, DAFs grow the original gift through investment, allowing donors to amplify their efforts.
DAFs should be part of every nonprofit's fundraising strategy for two reasons: They house billions of dollars in potential funding and are becoming a common place for wealthy individuals and families to park their philanthropic dollars. Something else to realize: DAF sponsors often manage several, if not dozens, of accounts. So creating relationships with sponsoring organizations has the potential to provide links to multiple donors.
Credit: Aly Sterling
Explore Corporate Giving Opportunities
Corporate giving has grown more significant in recent years as businesses join the rising trend of corporate social responsibility. According to Double the Donation, corporations donated more than $21 billion to nonprofits in 2019.
Although 2020's economy looks different than anyone was expecting, corporate giving hasn't stopped. Despite continued economic uncertainty for some industries, many businesses are continuing to engage in significant charitable work. For instance, big companies like Amazon Web Services and Ford are increasing grant opportunities for nonprofits.
To harness the generosity of businesses as a way to diversify your revenue streams, we recommend:
- Exploring matching-gift opportunities. Many companies will match philanthropic contributions from eligible employees. Make sure your supporters are aware of this key opportunity to maximize their donations! To take advantage of this, consider creating a campaign to raise awareness about matching-gift programs, using a database to determine specific donor eligibility or incorporating a matching-gift search tool into your donation page.
- Seeking direct sponsorships. Of course, you can also solicit direct contributions from businesses. Having a wide variety of corporate sponsorships is always beneficial, but it can be especially helpful in the quiet phase of a capital campaign. You may consider hiring a capital campaign consultant to guide your efforts in securing donations from corporations.
As you pursue these corporate giving opportunities, keep the impacts of the COVID-19 pandemic in mind. For example, now may not be the best time to solicit support from an airline or travel agency.
Credit: Aly Sterling
Strengthen Your Grant-Seeking Approach
Grant funding can be a powerful resource to help your nonprofit reach its fundraising goals. This year, many grantmaking organizations have pledged to make funding more readily available and with less restrictions in response to COVID-19. However, since grants can be fairly unpredictable by nature, it's wise to include them as just one piece of your fundraising puzzle.
Build grant-seeking into your overall fundraising plan, but be cognizant of the probability of actually receiving grants. A well-written proposal will take you far, but as you know, grants can be incredibly competitive, especially if it's your first time seeking funding from the giving institution.
In order to position your grant applications at the front of the pack, make sure that you:
- Identify the most appropriate funders and establish personal connections.
- Tailor the format and messaging of your proposal to the funder.
- Convey an emotionally resonant central message.
- Stay in touch with funders between grant cycles.
These tips will improve the competitiveness of your grant application as well as cultivate stronger relationships with funders that you can build upon in the future.
Also looking ahead, an evergreen grant management system can be an effective way to ensure the continued strength of your grant seeking strategy, year after year. As this article suggests, an evergreen approach can save you time by keeping key research in one place.
Credit: Aly Sterling
Cultivate Intentional Relationships With Donors
Beneath all of these revenue diversification strategies lies the same underlying idea: relationship-building.
Without relationships, your fundraising efforts will fall flat. When you prioritize making connections instead of just conducting transactions, each of your revenue streams will be more sustainable over the long term. Your donors want to be seen as people, not as piggy banks.
Especially in a crisis, authentic relationships require that you take a step back from direct fundraising asks. Yes, you need funds to provide mission-critical resources and services, but intentional connections will yield dividends that a few dollars won't. Donor stewardship is always going to be a worthy investment of your valuable time and effort.
To cultivate stronger relationships during this time of uncertainty, you should:
- Check in with key donors. Contact loyal supporters to see how they are faring in the continued uncertainty. Don't forget to remind them how grateful your nonprofit is for their support, but keep the main focus on the donor rather than your organization. If you're worried about seeming too opportunistic, you aren't asking the right questions.
- Emphasize recurring and planned giving. If your donors are financially unable to support you right now, invite them to commit to a later contribution. Even a small recurring donation can make a difference.
- Revisit your case for support. A compelling narrative will help you prove that your nonprofit's mission is worthy of your supporters' dedication. Be sure to illustrate the impact that donors can make (and have already made) with concrete examples.
These are just a handful of the stewardship strategies that can help you forge even more powerful connections with supporters. These relationships will help you diversify your revenue streams and reduce the risk of depending on any one fundraising source.
If your current stewardship strategies need an upgrade, consider seeking additional support from a nonprofit consultant. This list of top nonprofit consultants is a good place to start your search.
The COVID-19 pandemic has once again illuminated the ever-present need of diverse revenue streams. By exploring a wide range of funding opportunities, you'll be less vulnerable if one of them comes up short. This fundamental principle holds true in times of calm as well as crisis, so it's a strategy that will continue to benefit your nonprofit for years to come.