The usual nonprofit fundraising strategies generate revenue through individual giving, foundation requests, corporate contributions, special events, and government contracts. Each comes with its own set of financial costs and benefits.
Raising Money from Individuals
According to Giving USA, individuals make up the biggest piece of the fundraising pie, generally around 80 percent. And they do it through generally smaller size donations, averaging $25-$500. We talked about reaching individuals in Building Donor Relationships: Individuals. The return on investment to raise $1 through an existing donor is relatively low, although acquisition costs may result in a loss. Individual donors can be recruited and asked to give through your website, email campaign, direct mail campaign, social media posts or face-to-face.
Your upfront costs include a donor management software and a way to accept credit cards. Before you start, you will want a donor recruitment plan, a donor retention plan and training for your askers. Depending on how many ways to you want to ask individuals, you may also need to optimize your website, invest in an email campaign system and integrate fundraising messages into agency communications. After implementing an individual donation fundraising program, you will need someone to research donors, record the research, recruit the donors, implement the donor communication vehicles, track the response to the communications, answer questions when potential donors have questions, record donor interactions, receive donations, record the donations, write thank you letters, refund donations when there is a problem and report back to the donor the use of the donation.
Raising Money through Foundations
Foundation funding makes up approximately 15 percent of the charitable giving pie. We talked about building relationships with foundation in Building Donor Relationships: Foundations. They generally give larger donations than individuals, somewhere between $2,500-$100,000. The return on investment is the highest of all the giving groups. The way to ask for money from foundations is by submitting grant proposals.
To get started, you will need a foundation database search tool and a recordkeeping system. You may also need audited financial statements. You will need someone to research potential foundations, record the research, make a grants calendar, write the grant, answer questions if the funder has any questions about the proposal, monitor and record funder responses, record donations and their purpose, write thank you letters, monitor agency performance against grant promises, and write grant reports.
Raising Money through Businesses
Corporate contributions make up 5 percent of charitable giving pie. We talked about the reasons businesses give in Building Donor Relationships: Corporations. Average donations can run anywhere from $100-$25,000. Return on investment is relatively high. Corporations give through employee matching gift programs, employee volunteer programs, in-kind or non-monetary donations, sponsorships, and corporate foundations.
Before you approach a corporate giving partner, you will need donor management software. You will want to create sponsorship templates, a donor recruitment plan, and a donor retention plan. For ongoing efforts, you will need someone to research potential companies, record the research, reach out to the contact, follow up with the contact, make the ask, monitor and record responses, record donations and write thank you letters. If giving is through a corporate foundation, you will need some to write grant proposals, monitor agency performance against grant promises, and author grant reports.
Raising Money through Fundraising Events
Fundraising events raise money from a combination of individual and corporate giving. Income is realized through tickets sales, event sponsorships, raffles, auctions and ad journals. The amount of the donation usually varies from $100 to $10,000. Gross revenues are generally high. However, it costs $0.50 on the dollar to implement them, not including labor. And first-time individual event donors are unlikely to convert to repeat donors. We talked about how to analyze the success of your events in Evaluating the Success of Your Nonprofit Fundraising Events: Income, Impact, Costs, and Benefits.
To implement a fundraising event you will need a donor management software and a way to accept credit cards. Other costs may include raffle tickets, auction items, and bidding materials. The labor involved is huge. You will need someone to develop sponsorship templates, garner auction items, track auction donations, monitor bidding, deal with dissatisfied bidders, research potential corporate sponsors, record the research, reach out to the contact, follow up with the contact, make the ask. monitor and record responses, record donations and their purpose, and write thank you letters. If a foundation is contributing to the event, someone will need to monitor agency performance against grant promises and write grant reports. Someone will also needs to plan the event, negotiate with the venue, pick the menu, design the invitations, make sure you have enough postage, send out the invitations, advertise the event, recruit ticket buyers, implement the communication vehicles, track individual and sponsorship tickets, provide answers when potential event goers have questions, record donor interactions, receive the donations, and refund donations is there’s a problem. Depending on what type of event it is, someone will need to coordinate the seating chart, golf foursomes or walk teams. You may also want someone to coordinate with the media.
Raising Money through Government Contracts
Government grants and contracts can provide substantial funding for your nonprofit programs. We talked about the dual nature of governmental funding relationships in Building Donor Relationships: Government Funders. Governmental funding may be a good idea. Or, after assessment of the costs and risks, it may not.
The most direct threat to receiving or continuing governmental funding is budget cuts. Budget cuts means there is less funding to go around, which means a reduction in contracts. Current funding may be reduced, new money may not available, there may be a complete elimination of funding, or a combination of any of these can happen. In the current political environment, governmental funding is very much at risk.
Government regulations are also stringent and governmental monitoring can be onerous. Make sure you know ALL the requirements involved in applying for the grant, operating the program, reporting program results and reporting financial results. In addition, the allowable administrative expenses are very often lower than actual administrative expenses. If the grant is going to cost more than the revenues you will receive, don’t apply, or apply deliberately and have a solid plan in place for covering unallowable expenses.
In addition, you will incur non-reimbursable preparation costs, either staff or consultant. Government grants are often time-intensive to prepare, with complex application requirements. Governmental grants are also very competitive, often so competitive that you need to hire an expert to advise you in the process. And these upfront costs are not reimbursable.
At any time during the application or implementation process, you will be subject to any changes in the legislation and/or governmental budget allocations negotiations resulting in a shutdown. In other words, you may or may not get the funding even after you are approved for it. Or the funding is delayed and you don’t get it according to schedule. Which causes cash flow problems, unless you cease program operations until funding is received. Which causes other problems, like staffing and, most importantly, your clients not receiving needed services. If you stopped or reduced operations to deal with cash flow and funding is restored, you will still be required to meet your contract’s full program objectives. And if you don’t cease operations, you risk never being reimbursed.
Wrapping It Up
Whether you generate revenue through individual giving, foundation requests, corporate contributions, special events, and government contracts, each channel consumes resources before funding is a reality and comes with its own set of financial risks. It costs money to make money. When choosing your fundraising channels, go in with open eyes. Analyze the costs and benefits first, before you take chances that aren’t worth the risk.
How does your nonprofit raise needed funds? Is it working for you?