How to Diversify Revenue Sources for Your Nonprofit
No matter what line of work you’re in, revenue diversification is vital for helping your organization thrive.
While membership fees are a reliable and easily quantifiable source of income, especially with the help of member management software, there are some great alternatives out there.
Today, we’ll go over how you can diversify the revenue sources of your nonprofit organization. Here is what we will chat about:
- Why Diversify?
- Pros of Diversifying your Nonprofit Revenue Sources
- Cons of Diversifying Your Nonprofit Revenue Sources
- Generating Revenue for Nonprofit Organizations
- In Summary
Should you diversify your revenue sources? It is often said that "if it ain’t broke, don’t fix it," so if your primary and sole source of revenue for your nonprofit is working just fine, is diversification worth it?
Here are some of the pros and cons of diversifying your nonprofit revenue sources:
Pros of Diversifying your Nonprofit Revenue Sources
By opening your nonprofit to multiple streams of revenue, your organization becomes a lot more flexible in terms of changing external conditions.
By diversifying, you’re not limiting your organization to one source of revenue. For instance, if you rely entirely on your donors, a change in charity tax policy could cause a massive loss of income for you.
Marie is brainstorming more ways to diversify revenue for her organization!
Or, if you rely on a large yearly event for funds, such as a gala, then 2020’s COVID-related shutdowns might have blown a big hole in your bottom line.
However, if you have diversified income sources, a change in one of them still leaves the others available as a safety net, giving you time to adapt to new conditions.
Being held up by a single source of revenue means you have far fewer options when it comes to growth. You can’t do anything that might risk your only source of revenue.
Let’s say you only receive grants from one foundation. That foundation may come to you and "suggest" some things in regards to the operation of your organization. In this case, you don’t want to bite the hand that feeds you, and you would need to relinquish some control.
If you want to keep calling the shots at your nonprofit, diversification is a great way to stay in control. Having several sources of income provides your organization with freedom.
If you’re clinging onto one source of revenue, your organization might not be getting the recognition it could be. Only dealing with one revenue source severely limits your exposure as an organization.
Having one donor or sponsor is certainly less effective for recognition than having thousands of donors or dozens of sponsors. Spread the word about your organization by taking donations from as many places as possible.
Noah is ready to learn about all the ways he can increase revenue in his nonprofit!
This can be a selling point for your nonprofit as well. It makes your organization look really solid when you can show off all of the companies, donors, government contracts, and partner organizations that support you.
Cons of Diversifying Your Nonprofit Revenue Sources
The Crowding-Out Effect
Nonprofit organizations need to be aware of the crowding-out effect. This occurs when potential donors shift their decision-making when they observe your other sources of revenue. In this case, your other revenue sources "crowd-out" the potential donations.
For example, if your organization offers a $20 shirt that supports the cause, potential donors may see the shirt as an alternative to making a donation. Someone who previously would have made a $20 donation no-strings-attached is now buying the shirt instead, meaning their donation is $20 minus the cost of the shirt.
Crowding-out is sometimes inevitable, so you may have to make tradeoffs. Sometimes reducing one revenue source in order to make room for another source is worth it, and sometimes it’s not.
There’s no doubt that managing several new revenue streams might increase costs for your organization. Maybe you need to hire more employees, purchase more equipment, or even expand the capabilities of your organization as a whole.
When diversifying, you can expect your overhead to increase. You should do a good amount of planning with an accountant, business coach, lawyer, and any other support you have to make sure that the new revenue you receive through new sources is commensurate with the costs incurred.
Oliver is calling his business coach to help him prepare for diversification!
Diversifying revenue sources is, of course, easier said than done. For some organizations, it might be better to focus on one revenue source and really nail than to try and diversify too quickly. If you feel that diversifying isn’t the right step for you at the moment, there’s always more time later on to try it.
Ultimately, you know your organization best. Talk with your team and get their feedback. Remember, you’re not in this alone!
Here are a few revenue channels you can open for your organization:
Generating Revenue for Nonprofit Organizations
If you’re sold on diversifying your nonprofit organization’s revenue streams, then you’re going to like this next part. Without further ado, let's jump right in.
Expanding Your Donor Pool
If your nonprofit is funded by donations, you know how important it is that you have a steady stream of passionate donors. Without them, your cause may have little to no financial backing! We certainly want to avoid that.
So how can you expand your pool of donors? One way to achieve this is to do some networking. A certain subset of the population is passionate enough about your cause to give significant, recurring donations. You just have to find them!
This research can be done online via social media platforms like Linkedin, or at social events like cooperatives, seminars, summits, trade shows, and so on.
Find people who share the same interests and values as your organization, and would like to help you. It’s important to scan for philanthropic indicators.
Beatrice is ready to expand her donor pool!
Philanthropic indicators are an estimate for how much the individual is willing to give. This is usually in the form of donation history, types of donations, and public statements about the person’s philanthropic goals. For example, let’s imagine that you run a nonprofit that focuses on removing plastic from the ocean.
If a potential donor is making consistent and significant donations to environmental causes, they may be willing and able to add your cause to their list of beneficiaries. A history of donating to environmental causes shows that they’re passionate about saving the earth, and will sympathize with your cause.
Screen for individuals that share your values, and are promising on the philanthropic indicators. You can find people like this at events of all kinds, but especially at the ones that your organization hosts.
To find more potential donors, you should try to host events when feasible. Webinars, summits, and if possible, in-person events will make it easy to find new donors.
This strategy works great, because events like these are magnets for people who are interested in your cause.
Another way to boost your donor pool is to go for quantity. Maybe finding a few high net worth donors isn’t working. If that’s the case, try expanding the reach of your campaigns so that more people who can donate smaller amounts are aware of your mission.
Pursue Corporate Giving
Corporate giving is a very lucrative and important source of revenue for nonprofit organizations. Large companies with lots of cash on hand often get philanthropic when looking to do something with the extra cash.
Companies donate for tax purposes and to proudly display the causes that they support in their web presence, and general company media. What you can do is approach companies that are in a relatively similar niche as your nonprofit.
For example, if your nonprofit is focused on mental health, you could approach companies that offer remote therapy service or mental health-related products.
Much like scanning for potential donors, pursuing corporate giving involves finding organizations that share your values and show promise in their philanthropic tendencies.
David is confident in approaching corporate sponsors!
Additionally, it wouldn’t hurt to do a little bit of research when looking into potential givers. Take a look at publicly available financial information to see if your efforts of reaching out to the company will be worth it.
You’d be surprised by how many companies out there would be happy to support your nonprofit!
Seek Out Grants
Grants are another form of revenue for your nonprofit. While they’re not the most reliable source, you should definitely consider adding them to your workflow.
In response to COVID-19, some grantmakers have decided to make their funding pool more easily accessible to certain nonprofits. This means that your organization is more likely to qualify for grants now than it ever has been!
To prepare for grant applications, make sure to do some benchmarking. Read through the grant requirements, and see how you stack up compared to other nonprofits in your niche.
Once you’re confident that your organization will qualify, apply for as many grants as you see fit. While grants are great for nonprofits, you should never become dependent on just one of them.
Grants tend to have a generally unpredictable nature. A grant you’ve been receiving every year could just disappear if the grantmakers decide against renewing it.
Additionally, your organization deals with a lot of competition when applying for grants. It’s important to consider if the time spent working on getting a given grant is worth the amount of money it’s offering, especially if that time is needed for other, more pressing projects.
Now, we’re getting a little creative. If your nonprofit organization has a land or an office building with a little extra space, you can rent the space out to other organizations.
Areas that you can rent out include office spaces, conference rooms, fields, art galleries, and ballrooms. Any type of space that has value can be rented out given that you and your staff won’t be hindered by the rental, and that it follows the law in your area.
Salie is considering renting out her extra space to help boost revenue!
While this method can be effective, you also have to be very careful about which people come into your space. As with renting out any property, there will be legal stuff to figure out, cleaning schedules to create, and the potential for property damage. It might help to talk to a lawyer or someone with experience in rental properties, just to make sure nothing gets missed.
While this isn’t the most conventional method for nonprofit organizations to earn revenue, it could work very well for your organization, given that you have the resources to do so. Give it a shot!
Fundraisers are the big event for nonprofits. For many, this method constitutes their primary source of revenue. So how can you improve the effectiveness of your fundraising techniques?
One way you could cast your fundraising net out further is to use the Peer-to-Peer fundraising model. This involves encouraging donors to ask their peers to donate to your organization, like a sort of word-of-mouth network.
This is a great way to exponentially increase the success of your fundraising efforts, and spread the word about your mission at the same time.
Another way that you can boost your fundraising is through monthly subscription programs, where donors commit to a given donation amount each month. This helps to establish a reliable stream of funding for your organization.
Ryan is excited to use peer-to-peer fundraising for his next campaign!
In return for this great revenue stream, you can give back to the donors who give. For donors who pass giving milestones such as time period goals or money goals, you can give them a free gift of some kind: merch, recognition in your newsletter, you name it!
Of course, for all forms of fundraising, be sure to thank those who donate to you. It goes a long way, and increases the odds of the individual donating again and spreading the word.
As a nonprofit organization in 2021, you should definitely consider diversifying your income streams. If we have learned anything from the year 2020, it’s that the world can change on a dime.
What was once an incredible source of revenue can become dried up in an instant, leaving your organization in a tight spot. To avoid this risk, it’s vital to have several different sources of revenue that are unique from one another.
Follow this guide, and you will have a highly successful diversified revenue stream in no time!
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