How Successful Nonprofits Fundraise when Starting and Growing

Have you ever wondered why some non-profits grow successfully while others struggle to raise enough money to keep their doors open? Or are you thinking of starting a non-profit or trying to fundraise for an existing charitable organization and wondering how to approach it? I've had several people ask me to share some insights on this, so I hope this video will help you out. Welcome back to another video. I'm Amber Melanie Smith, non-profit founder, executive director, and speaker on leadership, service, and all things social impact. I make videos helping aspiring change makers with tips and strategies to help you change the world while living a life of impact and purpose. At some point, every effort to change the world involves that thing that change makers love to hate and hate to love. That's right, money. I'll cover a variety of aspects of raising money for charitable organizations and social impact projects in future videos, but for this video I want to focus on two questions. One, how are successful non-profit organizations raising money? And two, what are the different ways that organizations can raise money? Stick around to the end of this video because I'm going to break this down into two parts. First, I'll talk through five different ways that successful non-profits are raising money. Secondly, I will talk through how to plan for the long term to help your organization grow significantly. Okay, so let's talk about one thing that successful non-profits all have in common when it comes to fundraising. They all have diverse funding sources, but there is an exception. Having diverse funding streams is a good practice for startup non-profits and small and medium-sized organizations. When you're starting out, diversification is a really smart idea. Ah, but here's the exception. Once you get a bit larger, it turns out that diversification of funding sources may not be as critical as when you first began. So there is a fascinating study by the Bridgespan Group. They looked at the fundraising habits of 144 large organizations, all with at least 50 million dollars in annual revenue. What they found was that these very large organizations, so we're talking groups like Habitat for Humanity or the Make-A-Wish Foundation, once they got a bit larger, they actually relied and focused on a single fundraising source to achieve their really large size. Of course, being big just to be big should not be the goal of any non-profit or social impact effort. The ultimate goal, of course, should be to make a positive change, to address a social issue, to solve a problem, and then move on to address the next problem or disband because, hey, mission accomplished. Sometimes being a big organization is required in order to meet your goal, and sometimes being a small organization is just as good to get the job done. Okay, so let's dive into those five diverse fundraising strategies that successful non-profits are using to raise money. So as I mentioned earlier, new small and medium-sized organizations often find a lot of success by having diverse funding streams, so that means more than one method of raising money for their cause. I also want to make a note of something important, and that is that no matter which of these methods you undertake or others, there are a couple things you might need to do before you can get started fundraising. The first is that you're going to need to train and get help from your non-profit's board of directors to support all fundraising efforts for your organization. Secondly, you will most likely need to obtain a charitable solicitation license to enable your organization to start fundraising. About 40 out of 50 of the states in the United States require this license before a non-profit can fundraise, so be sure to check out your state's Secretary of State website to see if your organization will need to do that. Okay, so let's get into it with these fundraising strategies. First, there's a common misconception that grants are actually a top way that non-profits are bringing in money to operate. That is actually not true. Individual donations are the top way that organizations raise money across the country every year. In fact, they make up about 70 to 75 percent of all donations made across the United States each year. So it's a really good idea if you are a new or small or medium-sized organization to be really working on cultivating great relationships with individual donors. Individual donations can take a lot of forms. They can be one-time or occasional small gifts here and there. They can be responses to a campaign or a fundraising email or a letter that you send out. They can be recurring donations, which means that a donor has very generously decided to commit a certain amount of money to your organization every single month. Sometimes this is even automatically withdrawn from their bank account. So if you can set up a system like that, it'll really help you sleep well at night because you can count on those donations coming in each month. Another way that individuals make donations is through major gifts. Now, what a major gift is depends on your organization. Smaller organizations may consider a gift to be major if it's $500 or $1,000 or $2,000, whereas larger organizations might look at a major gift as something more like $5,000, $10,000, or $20,000. Getting a major gift can take a while because it takes a little bit of time to build a trusting relationship with a donor who might be inclined to make such a sizable donation to you, but it is totally worth it to get started building those relationships early. The second type of funding source you can use to diversify your funding base is corporate support. Similarly to grants, there's a misconception that corporate sponsorships and corporate grants are large sources funding for nonprofits, and that's just not the case. Annually, corporate contributions make up under 10% of donations across the country, but depending on the mission and specific activities that your cause is trying to undertake, corporate support could be a good fit for you. There are a lot of different types of corporate support. Some companies have their own foundation, that is the way that they do their charitable giving. Some of them have sponsorships for events. Some of them do matching donations, so this is when an employee who works at their company makes a donation and the company has a policy of matching whatever that individual employee donates to your cause as well. A lesser known way that companies can support organizations financially is through volunteer grants. This is when employees from a company volunteer for an organization and the company has something that's called maybe dollars for doers, which is where when an employee volunteers and gives their time, the company matches that employee's time with a financial donation. So some companies will do something like for every hour that employees volunteer, we give that non-profit $10. So if you have a lot of employees from a particular company who has this policy in place volunteering at your cause, that could equate to a significant donation over time. And finally, another great way to get corporate support is through in-kind donations. That means donations of goods or services instead of cash. So an example might be a donation of software or a laptop or building supplies, something that will help you achieve your mission, though it's not cash. A third funding source that organizations can use to diversify their funding base is grant foundations. As I've mentioned before, grants are not something that you really want to rely on as a non-profit. They are great, however, for giving your organization or a new program or project a boost to get things started or to help you meet a larger fundraising goal. Each year, financial donations from grant foundations make up about 16% of contributions across the country. Now there are two types of grant foundations, community foundations and private foundations. Community foundations can be found in cities across the country and normally have something like community foundation in their name so you know that it is a community foundation. While some community foundations do have their own grant funds that they disperse, a lot of them rely on what's called donor-advised funds. So this is when a private donor wants to start a fund to be able to give money away to non-profits, but they don't want to manage the administrative duties of that fund themselves, so they go through a community foundation to help them facilitate grant making and tracking all of their impacts. Usually how this works is the community foundation keeps tabs on the interests and causes that donors are passionate about and make recommendations to those donors to match them up with causes perhaps like yours that could be of interest to them as a donor. Often community foundations will also have a specific theme or issue that they are focusing on for a period of time in order to make a dent in an issue that their specific local community has said is important to them. The second type of foundation is a private foundation and this usually means that it's a foundation started by an affluent family who wants to give away funds on their own and handle those administrative tasks. Now the best way to get funding from either of these types of foundations is honestly to build a relationship with these foundations. It's really hard to get a grant from cold calling or writing a grant if they don't know who you are, if they haven't heard of you, if they haven't met you. It's a lot easier if they know you, you're trustworthy, they know your good works in the community. It's a lot easier to get a grant in that case. A fourth strategy that successful non-profit organizations can utilize for a diverse funding base is fundraising events. Now I'm not gonna lie, there are a lot of downsides to holding a fundraising event. They are a bit of work, they're a little unpredictable, you never know who's gonna show up, you never know who's gonna donate, so they can be a bit of a risk. In fact, as you get more sophisticated and more experienced as a non-profit, a lot of people will advise you to start moving away from fundraising events or at least focusing on one, no more than two, major fundraising events throughout the year. The reason being, of course, just what I said. There are a lot of manpower, a lot of work to put on, and sometimes the payoff is not what you hope for. But if you are a newer or smaller organization, a fundraising event could have some other benefits too, like raising awareness and building up your network of future potential donors. A fundraising event is at least something that you can do before you have built up that strong base of donors already, so it's a good way to introduce yourself to people, give them a fun experience, and get your name out there. There are a plethora of fundraising event ideas out there, from your standard gala to your 5ks. You've got peer-to-peer fundraising, which is great, especially if you integrate some kind of online component to that. This is where people are kind of your champions for fundraising. They go out and they ask all of their friends to fundraise for you and hopefully bring in a lot more donations and introduce a lot more people to your cause that way too. The fifth fundraising strategy and a really key strategy that many, many successful nonprofits undertake is called earned income. So there's this common idea that nonprofits have to rely strictly on donations in order to operate, but that's not entirely true. You can get earned income, or fees for service might be another way of calling it, and what this means is that you are selling some kind of service or good to raise money for your organization. These are not considered tax-deductible donations, however they are a fee for service. Whenever someone is getting something of value in return for the money they are giving your nonprofit organization, it is either not tax-deductible or you can only deduct the value of the difference between what they donated and the value of what they got in return. Earned income is a huge way that successful nonprofits are staying afloat. In fact, almost half of all revenue of nonprofits nationwide comes in through earned income or fees for service. Now note I said revenue, not donations. Before I talked about the breakdown of different donations in the country, but this is just revenue. So half, half of all revenue is coming in through these earned income streams for nonprofits. Often nonprofits with an earned income fundraising strategy might be called social enterprise organizations. Social entrepreneurship is when you combine a social good mission like those of nonprofits with business-like strategies. Examples of this might be when a nonprofit charges a reasonable fee for their services. So examples might be clinics or housing support or consulting. It can also involve selling an item like food or clothing or furniture. So there's two catches to earned income though. The first is that whatever you are doing to generate income, it has to align with the mission of your nonprofit organization. Otherwise you might get hit with taxes due to having unrelated business income. So say for example that your nonprofit's mission is to help formerly incarcerated individuals find employment. So let's say you start a service to raise money for your nonprofit by providing moving services for your neighborhood and hiring the clients that you're serving, those formerly incarcerated individuals, to be the movers or managers of this program. That example aligns with your mission in this case because remember your mission is to find employment for formerly incarcerated individuals, which you've now done. However, let's say that same nonprofit ran a thrift store. It did not employ any of the clients in its thrift store. It was just a thrift store out there raising money for its organization. Even if all the money goes back into its programs, which as a nonprofit it would, that could be a situation in which you would get hit with having to pay taxes because it's unrelated business income. The second catch to earned income is that in many cases earned income cannot make up all of your organization's revenue. As a 501c3 tax-exempt public charity, you are expected to raise at least one-third of your annual revenue from public support, meaning those donations, grants, corporate contributions, etc. So not earned income. Earned income is still a great way to raise money and raise a decent amount of money to support your organization and help keep it sustainable as you grow. It's just not something you should rely on purely for all of your fundraising. Now one funding source that I'm not really going to get into in this video is government grants, especially local government support. The reason for that is they can be pretty tricky to get and they're usually a better fit for pretty specialized organizations that fulfill a big need that the local government has. So I'm not going to get into that right now, but if you guys are interested in hearing more about that, I will be sure to drop some resources in the description below for you to learn more. You might have noticed a common thread between all of the five funding sources and strategies that I just described, and that is relationships. In all cases across the board in any kind of fundraising, having strong relationships with the people in your community, the potential funders, and your existing donors who are already supporting you are going to go a long way in making sure that you get that sustained support that grows and grows over time. So honestly one of the best things you can do when you're just starting out is to just get out there. Meet people, go to networking events, speak at as many venues as possible to get your mission and the name of your organization out there. Just start making sure people are hearing about you, hearing your story, and coming to love what you do. Now at the beginning of this video I talked about how diversifying your funding base is a good strategy for new, small, and medium-sized organizations, but then I talked about larger organizations. So now I want to get into longer term thinking. What do you do when you're at that larger size and you need to take it to the next level to become one of those massive organizations? Because that's the only way you're going to affect widespread positive change that you need to affect. So here's the thing. There is not a single fundraising strategy that is a one-size-fits-all solution. For some organizations, focusing on earned income could be the best fit. For others it might be individual donations, and for others it might be government contracts or grants. So in order to think ahead and grow to that massive size like those organizations like Habitat for Humanity or Make-A-Wish Foundation that I mentioned earlier, you have to focus on finding the right fit for your organization. And what I mean by the right fit is that it's a fundraising strategy that you excel at and makes sense for your specific mission and the program activities that you undertake as a non-profit organization. So a few examples. Let's say you fulfill a big need that your local or county government might otherwise be fulfilling if you didn't exist as a non-profit. Well in that case, you might actually be a really good fit for convincing your local government to support you with a government partnership or contract or a government grant. And the reason for that is you are providing a value to the local government and reducing their workload. If you're thinking that individual donations might be the biggest fundraising source for you as you grow as an organization, there are a couple ways to think through if that's the case. If you have a compelling story, a strong brand, and a message and a mission that is very clear and easy to understand, then your cause might be a good fit for getting a large amount of its support from individual donations. Those organizations that have become very large from the help of small and medium-sized donations are the ones that have very simple, easy to understand messages and missions. They're also very emotionally compelling messages and missions. Great examples might include ensuring that no child goes hungry or that all animals are treated humanely. A third example is if you're thinking through if earned income is going to be your biggest source of income in the future to keep your organization sustainable, you might want to consider if you have a logical way of selling goods and services that align with your mission. Examples might include selling meals at a pay-what-you-can restaurant, providing consulting services to other charities as long as that's aligning with your mission, or running a thrift shop or other store that has a tie-in to your mission, or you just accept that you are going to have to pay some taxes on that unrelated business income. Finally, as I mentioned earlier, when you are that medium or large size as an organization, you're thinking far ahead to your long-term strategy to become a really large organization, have a lot of reach, and a lot of impact. You're going to need to focus on what your core competency is as an organization when it comes to fundraising. So you want to think about as an organization, what do you bring to the table? What can you do better than other organizations out there that is just the thing that you do and you're known for it? So are you great at mobilizing volunteers? Are you really good at creating compelling digital content or storytelling or public speaking? Do you have access to an affordable storefront and a reason to sell goods or services in that storefront? Combining the fundraising strategy that makes the most sense for your particular mission with the skills that you bring to the table best, it's going to make sure that you are able to raise enough money to sustain your organization and grow it to whatever size it needs to be to make the impact that you are looking to make. Whatever stage you are at in working with a nonprofit organization, whether you are a startup, small, or growing to medium or large size, I really hope this video is helpful to you. I want to hear what are some creative ways that you've raised money for charity or seen other nonprofits raise funding. Please share those in the comments below. I'd love to engage with you. I really hope you liked this video. If you did, please give it a thumbs up and don't forget to subscribe because I'm making weekly videos on all things social impact, service, nonprofits, leadership, and more. Finally, once again, if you are on Facebook, please stop by my group Change the World or Bust and join in on conversations with myself and other change makers on changing the world. As always, I'll leave the link to that group and all of the other links to things I talked about below in the description. Thanks so much for watching.