In the United States, social sector spending and corporate social responsibility (CSR) have seen notable growth in recent years. Philanthropic giving reached approximately$500 billion in 2023, growing by around 10% over the last five years[1].Government spending on social services also remains significant, accounting for about 10% of domestic GDP.
CSR initiatives, in particular, have become increasingly robust. An increased focus on sustainability, equity, and diversity drives this growth. Companies are also becoming more transparent and accountable in their CSR reporting, aligning their strategies with environmental, social, and governance (ESG) standards to meet stakeholders' rising expectations.
But while giving has increased, nonprofits worldwide are besieged by a myriad of issues—mushrooming inflation and political instability, increasingly stringent funding compliance, and redirection of funds towards more urgent causes, to name a few. In such an environment, nonprofits must invest in sound financial management and insulate themselves, to some extent, from the unpredictability of the funding pipeline.
Diversifying Revenue Streams
In simpler terms, diversification is not putting all your eggs in one basket - which is a cliche but it holds in most cases. Relying heavily on one or only a few revenue stream can leave a nonprofit high and dry during turbulent times.
For example, A nonprofit arts organization inOklahoma had secured funds and planned for expansion. However, when the pandemic hit, their financial situation was drastically impacted as major donors redirected their contributions towards immediate COVID-19 relief efforts. This sudden shift left the organization struggling to maintain operations and serve its community.
To adapt, the nonprofit had to rely heavily on government programs like the Paycheck Protection Program (PPP), which provided low-interest, forgivable loans. These loans helped them stay afloat by covering staff salaries and operational costs, but the challenge highlighted the vulnerability of relying on a few key funding sources. Many organizations had to rethink their funding strategies and build more financial reserves to weather such crises in the future.
This example highlights the need for diversification in funding sources and the importance of flexibility in donor commitments during emergencies. It is critical for nonprofits to build strong relationships with funders who understand the importance of maintaining ongoing programs, even during global crises.
Nonprofits must invest time and resources in planning where they source their resources because all the ground operations and impact are only one funder away from not existing at all. Identifying a pool of potential donors to contact in emergencies, having a contingency fund, and setting limits for revenue sources can be a good start.
Innovation, Tests, and Result-Driven Funding
The reason why stores put their best products on display is because buyers are visual creatures. The same goes for funders. Funders bet on promises, and nothing promises results more than results. More and more donors and funders are making data-driven decisions when investing their resources. Findings from pilot programs and preliminary studies, quantitative data, and narratives built around how the theory of change has manifested on the ground are things that catch the eyes of investors the most.
Innovative pilot programs with a cascading and long-lasting effect are a significant part of securing bigger grants. For example, Project ECHO began as a telemedicine initiative aimed at tackling the Hepatitis C virus (HCV) in areas where it was rampant, like prisons. Although a simple telemedicine intervention, it sought to democratize access to HCV specialists and reduce what ECHO founder Dr. Arora termed a“knowledge monopoly.” While the immediate effect was treating a specific disease, the Robert Wood Johnson Foundation saw an opportunity for trickling down expertise in any medical field. Soon, ECHO began offering no-fee CME credits and disseminating niche knowledge to thousands of medical professionals, making healthcare more accessible.
These data-driven innovations attract larger grants and contribute to the diversification of funding streams, as successful pilot programs often open doors to new funders, sectors, and revenue opportunities.
Joining Hands with Like-Minded Stakeholders
According to the 2023 CECP Giving in Numbers report, 86% of companies in the US now partner with nonprofits to address social issues. This demonstrates an increasing corporate commitment to collaborative social impact.Collaboratives between multiple stakeholders offer the possibility of synergizing efforts and optimizing resources.
With more hands on the table come more ideas and perspectives, more skills, and more influence. Establishing collaborations requires knowing your priorities, studying your donor base, and aligning short-term goals and long-term vision with their interests. Moreover, nonprofits can leverage their existing donor network to tap into newer pastures.
Focusing Efforts on Dedicated Funders
With more entities entering the social impact sector, it can be a difficult landscape to navigate. In chasing the mirage of a big, reputable donor, fundraisers can often lose sight of a literal oasis that can guarantee an influx of funds. It is advisable for Nonprofits to expend their energy on targeting donor funding in specific niches.
By building strong relationships with dedicated funders in specific niches, nonprofits secure reliable support and create a diversified donor base that can protect against the unpredictability of larger, less accessible donors.
Diversifying Programs
Lastly, diversifying programs and services into allied fields is a clear mark of growth for nonprofits — both in terms of vision and finance. For instance, Project ECHO began by addressing HCV but later expanded to addiction and psychiatry and received $1.5 million worth of funding from the New Mexico StateLegislature. Later, diabetes was also added to the list.
Expanding the horizons of a nonprofit's services has the potential to address emerging needs along with prevalent ones. This can catch the eye of diverse donors, each of whom can plow in funds for causes aligned with their own interests.
Conclusion
With rapid policy revisions and increased competition in this global economy, a diversified donor portfolio is non-negotiable for sustaining operations.Nonprofits can mobilize funds from a bouquet of donors to ensure they can withstand blockages in the funding pipeline if they ever arise. Sound financial planning, collaborations with other stakeholders, and leveraging their networks are a few of the things that can help them achieve this.
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