For nonprofits like yours, the key to fundraising success is sustainability. While you might bring in more contributions during certain seasons, such as your year-end giving campaign and annual events, it’s important to consider how you can generate revenue to fund your organization's activities year-round.
Having multiple revenue streams is also part of effective nonprofit financial management. According to Jitasa, diversifying your funding makes your nonprofit’s finances more stable by allowing for more flexibility in your budget. This way, you can have additional funding available if your expenses are higher than predicted or a revenue source falls through.
To help you get started with diversification in your fundraising development plan, this guide will outline the most common nonprofit revenue sources. We’ve broken them down into five categories:
- Individual Donations
- Corporate Philanthropy
- Earned Income
As you assess your nonprofit’s revenue sources, keep in mind that your fundraising and financial management strategies should work side by side to fund your mission. Every organization is different, and you’ll benefit most from a funding model that is tailored to your unique needs and goals. Let’s dive in!
1. Individual Donations
If your organization is like most nonprofits, contributions from individual donors make up the bulk of your funding. There are many different methods through which individuals can give, all of which need to be accounted for separately in your budget and tax returns.
Some types of individual donations include:
- One-time donations of all sizes, including small, mid-level, and major gifts.
- Recurring donations, which come in on a monthly or annual basis through your online donation page.
- Planned gifts such as bequests, trusts, and charitable gift annuities.
- Event revenue from ticket sales, peer-to-peer campaigns, purchases made at the event, and direct contributions.
- In-kind donations, which are donations of goods or services rather than money.
- Contributions from passive fundraising programs like restaurant profit shares or online shopping fundraisers.
Soliciting various types of individual donations allows supporters to engage with your organization in the way that appeals most to them. To determine which methods to prioritize in your revenue generation strategy, analyze your donor data to gain insights into your supporters’ giving habits.
2. Corporate Philanthropy
The term “corporate philanthropy” refers to direct charitable contributions made by for-profit companies. Businesses of all sizes are willing to partner with nonprofits to support good causes in their communities and build reputations as socially responsible companies.
Why Companies Engage in Corporate Philanthropy
Before diving into specific types of philanthropy, let’s explore why companies engage in philanthropic activities. These are some well-known benefits for companies:
- Reputation Boost: In exchange for corporate support, nonprofits often publicly recognize companies for their generosity. Companies want to see public recognition and the reputation boosts that come with them.
- Employee Engagement: Companies want to engage employees in workplace giving, so workers will feel more satisfied and proud of their workplaces. By partnering with philanthropic companies, your nonprofit can help them achieve that goal!
- Tax Benefits: It’s no secret that businesses receive tax deductions by financially supporting nonprofits. This may not be their primary motivator for participating in corporate giving, but it’s certainly on their radar.
Understanding common motivations for businesses will be helpful as you build new relationships. Emphasize these benefits when approaching companies with sponsor proposals.
Primary Types of Corporate Giving
There are many different forms of corporate philanthropy, but some are much easier for nonprofits to tap into than others. These are the three key avenues for corporate philanthropy that nonprofits should focus on first:
- Event sponsorships. Some businesses prefer to sponsor nonprofit fundraising events through monetary contributions, while other sponsorship agreements involve in-kind donations such as auction items or free catering services for events. Either way, the most effective partnerships are mutually beneficial. In return for your sponsors’ contributions, your organization should provide them with free publicity in your event marketing materials at the very least.
- Matching gifts. When an employee of a company with a matching gift program donates to your nonprofit and submits a match request, their employer will also contribute, usually at a 1:1 ratio to the original gift. By encouraging donors to submit requests to their companies, your organization can potentially double its donation revenue.
- Volunteer grants. Similar to matching gifts, employees of companies with volunteer grant programs can submit the number of hours they volunteered with your nonprofit. Then, the business will make a financial donation based on those hours.
Since matching gifts and volunteer grants require supporters to submit requests to their employers, make sure to communicate with donors and volunteers about checking their eligibility for these opportunities. Effectively marketing these opportunities may even encourage eligible supporters to give larger donations or volunteer longer because they’ll know they can increase the impact of these contributions.
Emerging Types of Corporate Philanthropy
After building foundational relationships with companies through sponsorships and matching gift programs, you can then look for ways to take their support to the next level. Nonprofits Source identifies these additional forms of corporate philanthropy in its guide to corporate giving:
- Employer matches for funds raised by employees in peer-to-peer campaigns
- Grants for specific programs either made directly or through a corporate foundation
- Annual giving campaigns promoted to employees, particularly at year-end
- Automatic payroll deductions for employees who opt in
- Direct stipends of additional pay to be donated to nonprofits
The corporate giving world is expansive. Any one of these programs can make a difference in your work, so brainstorm with your team about how you’ll transform corporate giving into a reliable revenue stream.
3. Earned Income
Earned income is often associated with for-profit organizations, not nonprofits. However, it’s legal for your nonprofit to self-generate some revenue—the funds just have to be reinvested into your organization as any other donations would.
Creating a membership program that charges annual dues and selling branded merchandise like t-shirts or water bottles with your organization’s logo are two of the most popular ways for nonprofits to earn income. If you have space at your facility to host an event, you could also rent it out to other organizations for a fee.
If you choose to start a membership program, follow these steps:
- Determine its structure. When you're developing a membership program, you'll need to choose an appropriate structure based on your goals. Ask yourself what the main purpose of your program is, whether that's fundraising, advocacy, or community-building. You should also decide what benefits you'll offer and how members will contribute to your nonprofit in return.
- Set membership fees. Like your program's structure, you should also set your membership fees according to your goals. Evaluate your organization's current financial priorities, such as contributing to a specific campaign or developing a new program. Then, determine your fundraising goal for those initiatives and divide it by the estimated number of members you'll acquire. The resulting amount will be your membership fee.
- Create a leadership strategy. It takes a lot of time and effort to run a membership program, so you'll want to ensure you have leaders in place who are ready to take on this challenge. Smaller organizations may only need one individual to run their program while larger nonprofits may have a membership program leadership team. If you don't have the resources to employ staff members to lead your program, consider enlisting the help of volunteers.
- Promote your program. Once your program is fully formed, promote it to your supporter network. Use channels such as your website, newsletter, and social media to spread the word. Direct supporters to your membership application where they can sign up for the program and contribute their dues.
The only drawback to earned income is that it can be complicated to report on your organization’s annual tax return, especially if sales tax figures into the equation. Consider consulting a nonprofit accountant before adding earned income to your revenue generation strategy to ensure you’ll be able to record and report it correctly.
Investing also isn’t commonly associated with nonprofit revenue generation. However, you’ve likely heard of endowment funds, which are based on investment. If a major gift comes in the form of an endowment, your nonprofit doesn’t spend the initial donation but instead deposits it into an investment account. Then, you’ll put the interest earned on the endowment fund toward a particular initiative designated by the donor.
Additionally, Infinite Giving’s guide to nonprofit investing explains that your organization can (and likely should!) open a brokerage account just like an individual can. Nonprofits can also invest in stocks, bonds, treasury bills, and even cryptocurrency if their financial position allows. While investments don’t tend to be a lucrative revenue source in the short term, they can help your organization build assets and grow its long-term savings.
Many different organizations provide grant funding to nonprofits: government entities, corporations, and public, private, and family foundations. Most of these grants are competitive, but they can provide critical funding for some of your organization’s most important initiatives.
If your nonprofit decides to pursue grants, here are a few tips to increase your chances of securing funding:
- Pursue opportunities that align with your organization’s needs. Grant funding is often restricted, meaning it has to be used for a specific project or program at your nonprofit. Read the grant requirements carefully to make sure you could use the funding for an initiative you’re planning.
- Build relationships with funders. Many grant applications are invitation-only, and even the opportunities that aren’t will be more within reach if you connect with the funder in advance. Share resources about your mission and invite them to an event if possible so they can see your nonprofit’s impact firsthand.
- Write a strong application. In addition to writing clearly and concisely, double-check that you’ve followed the grantmaker’s guidelines exactly. These include adhering to the deadline, ensuring the sections are the correct length and in the right order, and attaching any requested documents such as a proposed budget or past financial records.
- Consider in-kind grants like the Google Ad Grant. What makes the Google Ad Grant unique is that it comes in the form of $10,000 in monthly ad credits. You can use these ad credits to bid on relevant keywords and create ads that show up in search results for potential supporters. Perhaps the most appealing aspect of the program is that there's no competition for funding. Any nonprofit can participate in the Google Ad Grant program as long as they're eligible and submit an application.
Funders tend to think of grants as investments in a good cause. As you seek out and apply for grants, make sure to show that awarding funding to your organization would be a good investment.
Your nonprofit’s funding model likely already consists of a few of the five sources listed above. To make your fundraising and financial management strategies more sustainable, consider adding some new revenue streams to your budget.
Just remember that all of the funding you bring in needs to be reinvested into your nonprofit. If your organization has some money left over after your expenses are covered, use it to bolster your reserve funds. This way, you’ll be more prepared for future challenges and have more flexibility in planning for growth.