Ask the Nonprofit Specialists

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Nonprofit Resource Development and Fundraising

What are the sources of funding for nonprofit organizations?

Funding for nonprofit organizations generally comes from three sources: Earned income, governments, and philanthropy, with many individual sources within each of these categories. Most people think of philanthropy, or grants and donations, as synonymous with fundraising. In reality, nonprofit organizations need to understand raising funds, or resource development, includes a broad spectrum of activities. Philanthropy is a critical cornerstone of resource development, but few organizations can sustain itself with philanthropy alone. Effective organizations usually have a diverse base of funds, including earned income, philanthropy and government funding.

 Nonprofit financial model

The different sources of revenue and specific categories of resources require specialized approaches and skills, but all are grounded in the effective components of developing engagement as described later in this article. Trainings, books and online resources on the specific types of resources are readily available and are worthy of further investigation. For example, grant writing is subject of many books and training sessions are offered regularly in many communities, including at the ASU Lodestar Center.

What percentage of philanthropy or charitable funding comes from grants, individuals and businesses?

It is helpful to know a little bit about the sources of philanthropic giving so you can direct your efforts in the most effective manner. Many people want to start by asking businesses for help, but in reality, corporations account for only 5% of overall charitable giving. Individuals account for most giving. Here is a recent breakdown of sources of charitable or philanthropic giving:

2011 Charitable Giving

How do we get started generating funds for our organization?

All types of resource development require similar fundamental components:

  • Organizational clarity of mission
  • Compelling community need
  • Short term plans and long term vision
  • Track record and/or demonstrated capacity
  • Engagement and solicitation of funding
  • Stewardship of funds raised.

Clarity of mission

An organization needs a clear and compelling mission with plans for how that mission will be carried out. It is helpful if an overarching vision that asserts what difference your program or organization makes in the lives of those you serve can be clearly articulated. And a strategic plan, in place, can provide guidance of effort. Does this mean you have to have everything figured out, including a five year budget, staffing plan and other specific activities? No. It does mean that you should be able to clearly and specifically state your mission.

For example, “helping youth in need” is rather broad, whereas “helping Arizona youth in need of academic support” is much clearer and specific.

Compelling need

An organization needs to further articulate the need for the organization’s services and the basic plan for meeting the need. Using this example further, the organization’s focus is on providing academic support. Thus, it needs to describe the need for academic support, both in terms of the nature of need, supported by data and with information on the lack of other resources meeting the need. Here is an example: “High school students in Arizona lack basic education skills as is evidenced by test results that show that only xx% meet expectations for achievement. At 75% of schools in Phoenix, there are no after-school tutoring programs offered.”

Strategic plan

The strategic plan should describe how you intend or are actually rolling out your services and the context in which you operate. Example: “After-school tutoring has a demonstrated track record of improving academic outcomes. Our organization will start by recruiting volunteer tutors from neighboring churches to provide tutoring twice a week after school at xxxx high school. Eventually, our organization will support tutoring programs at all Phoenix high schools without other programs.

Track record and demonstrated capacity

How will you demonstrate your organization’s capacity to do what you say you want to do? There are many ways to show your ability to meet the mission.

What are you doing already? Good planning is important, but actual effort and outcomes demonstrate capacity. In our example above, the organization could start a pilot tutoring program as a first step of building a track record.

Most organizations form around a perceived need or passion of the founders, who are generally engaged in the issue in some way. Describing the qualifications and similar experiences of founders or key members of the organization is another way to demonstrate capacity.

Another way to build a track record is to align with an ally organization and provide services through the other organization, building experience and outcomes as do.

Engagement and solicitation of funding

Effective resource development requires successful engagement and cultivation of potential and existing funding sources from an ever expanding circle of supporters and or stake holders. The key is not to develop an endless list of potential donors or partners, but to effectively engage those who believe in your organization’s mission. For many new nonprofits, this often includes the family and friends of the founders, but as an organization matures it includes individuals and institutions touched by the mission, those served, and who are supportive of your efforts. In order to support an organization, potential donors or partners must first know about your organization and its outcomes. The best way for someone to learn about your organization is through a relationship with another who already supports and is engaged in the organization.

Developing supporters, donors and partners one by one may seem a daunting task, but the disciplined individual cultivation of supporters will produce better results than mass appeals. Think of fundraising as friend raising and recognize that in a process that includes identification, cultivation and solicitation, the bulk of your time and effort should be focused on cultivation.

Fund/friend-raising process

Consider these scenarios which are fundraising specific but the concept can be generalized to all types of resource development:

Your organization wants to generate support from a group of business people who have organized themselves around their values of giving 20% of their profit to charitable organizations. Their individual and combined contributions to your community’s charitable organizations are legendary. Given this reputation, you want to solicit funds for your organization, which shares many characteristics with other groups they have supported. You look up contact information on the internet and fire off a letter to the 100 members of the group, extolling your organization’s virtues and requesting donations. A month later you have received only 2 donations for $25 each and wonder what happened.

Same scenario as above, but instead of sending off a letter, the members of your organization review the 20% group to determine if there are any existing relationships between your members and the members of the giving group. You realize one of your board members attends the same church as one of the 20% group members, and they know each other casually. Your board member approaches the 20% group member at church and says “I understand you are a member of the 20% club. I am on the board of a terrific organization I would like to tell you more about it. Could we spend a few minutes now or can I give you a call later to share information about the organization?” After sharing more information, the 20% member’s interest is piqued and she comes for a tour or your program. Before she leaves, she writes a check for $100 and offers to bring another member of the 20% club on a tour who also gives $100. Before long, many members of the 20% are donors and together contribute $5,000 to your organization.

Of course, these scenarios are over-simplified but the point is relationships lay the ground work for engagement which in turn leads to donations. “We don’t know anyone with money” is a lament of many organizations, as is “why does it always have to be about who you know?” In reality, your organization probably already knows everyone it needs to start raising funds from individuals and institutions with diverse financial resources. The trick is identifying who you know, building a connection and engagement with your organization and asking for funds. How and when you ask for a donation or type of support will vary, but it should come after you determine that the potential donor or partners feels a sense of engagement in your mission. Recognize that not everyone who supports your efforts will want to make a contribution, so plan on asking enough times to accommodate those who will choose not to donate.

Stewardship

Once someone makes a donation or engages in partnership with your organization, your stewardship of that relationship and funding is critical. Done correctly, good stewardship, including fiscal prudence, meaningful outcomes, strategic planning, communication and relationship building, will result in sustainable funding. Kay Sprinkle Grace, author of High Impact Philanthropy, calls this the Transformational Infinity Loop:

Transformational infinity loop

ASU Lodestar Center resources

The ASU Lodestar Center for Philanthropy and Nonprofit Innovation has many resources related to resource development including training through our Nonprofit Management Institute, including Grant Development and Proposal Writing and Fundraising and Sustainable Financial Management, along with our Capacity Support Services, which includes individual organization training through our Effective, Motivated Board Governance program.

Check out the Lodestar Blog for a variety of articles on nonprofit management and research.

Other resources

Publications

  • Axelrod, Terry, Raising More Money: A Step-by-Step Guide to Building Lifelong Donors, Benovan
  • Klein, Kim, Fundraising for Social Change, Chardon Press
  • Rosso & Associates, Achieving Excellence in Fund Raising, Jossey-Bass
  • Sprinkel Grace, Kay and Wendroff, Alan L., High Impact Philanthropy, Wiley Nonprofit Series
  • Steckel, Richard, Filthy Rich & Other Nonprofit Fantasies, Ten Speed Press

Websites

(This list of questions regarding Resource Development and Fundraising has been developed by the many persons and organizations seeking assistance from the Lodestar Center.)

Please note that websites frequently change and while we endeavor to keep links current, some might not work. When you encounter such a problem, you can help us by sending an email to nonprofit@asu.edu so that we might investigate and make changes to our information and links.

Copyright © Arizona Board of Regents for and on behalf of the ASU Lodestar Center for Philanthropy and Nonprofit Innovation, Watts College of Public Service and Community Solutions, Arizona State University. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the express written permission of the ASU Lodestar Center, except for brief quotations in critical reviews.

Illustration by Jocelyn Ruiz.