KNOW CATEGORIES OF FUNDING SOURCES AND STRATEGIES TO REACH THEM
You’re fully committed to your mission and the programs that advance it, but none of it comes free. On top of that, there’s intense competition for limited resources. There are lots of things to consider -the role of your board, a communications plan, an online presence, and diversification, to name a few – so think of this as a springboard to taking your fundraising to the next level.
Nonprofits have been hit especially hard by the economic downturn in recent years. As foundation endowments shrunk alongside corporate, government and personal budgets, charitable contributions plummeted. The good news is, the latest reports show signs of a rebound.
According to the Nonprofit Research Collaborative 2010 Fundraising Survey, the number of nonprofits reporting decreased contributions dropped by 14 percentage points, while those reporting increased contributions grew by 13 percentage points. That’s promising, but there’s a long way left to go.
Nonprofits represent a trailing sector. That means they are typically the last to rebound because they rely on the liquidity of other sectors. Those with endowments have often had to draw from them during tough times. Worse yet, as personal wealth has decreased, the need for many of the services nonprofits provide has risen.
Economic circumstances have led many nonprofits to look at new options to use their resources more efficiently. Certainly budget cuts and staff reductions have been a reality, but so have mergers. Many nonprofits are maximizing resources by joining forces organizationally, operationally (such as by sharing offices and administrative staff), or at the program level. Assuming strong mission alignment and a sound agreement between the organizations, this can be an extremely effective approach, particularly for smaller organizations.
Another trend that can emerge in a difficult economy (or, frankly, in any economic circumstance) is the concept of grant chasing. When funds are in short supply, it can be very tempting to pursue funding for programs that aren’t tightly aligned with your mission. The problem – in addition to your legal responsibility to use funds for exempt purposes – is that it can easily get out of hand. Organizations can quickly find themselves spending time managing multiple programs that aren’t aligned with their overall strategy.
The types of fundraising most appropriate to your organization will depend on the nature of your work, your size and your geographical presence (e.g., a neighborhood vs. a national organization).
The primary types of fundraising sources include the following:
- High-net-worth individuals: For many nonprofits, these individuals represent a significant portion of revenue. They are typically people who live in your community and have a personal commitment to your mission, and they must be cultivated in a very personal way. Companies like WealthEngine (www.wealthengine.com) can be very useful in identifying donors in your area. Your board plays a crucial role in developing and maintaining these contacts. In addition, a skilled director of development should be in a position to support this function by identifying and helping to steward donors.
- The public: According to Giving USA 2011 by the Giving USA Foundation, individual contributions accounted for 73 percent of all charitable giving in 2010. In other words, cultivating a broad base of individual donors is critical to fundraising success. Typically these donations are not tied to a specific program (whereas a grant might be), so the funds you raise can be applied to where they are most needed. Online giving, direct mail, and events are common ways to engage individuals. The most important thing is to continue the relationship after the gift has been received.
- Special events: Events are a fundraising mainstay for many nonprofits. The most effective ones tend to feature fun, unique content; a clear target market; minimal competition with other events; and a committed volunteer base to help plan, organize and spread the word. Most importantly, truly impactful events feature a clear connection to the organization’s mission and are hosted by an organization that connects with donors year-round.
- Foundation grants: Philanthropic funding can be an important part of fundraising, particularly as it relates to funding specific programs, events or capital campaigns. If you’re new to this type of funding, it’s important to set realistic expectations. Foundations of all sizes are inundated with requests and can usually only fund a small percentage of the proposals they receive. Relationships are as important here as they are with individual donors. Keep in mind that these funders will respond best when they see evidence of community support, including from your own board.
If you represent a small, local organization, start out by seeking grants from small community foundations in your area. Foundation Directory Online (www. fconline.foundationcenter.org) offers subscription-based services to research foundations of all sizes. You might also consider signing up for RFP alerts from Philanthropy News Digest. The Center for Nonprofit Management also offers a list of fundraising databases that will be useful to you. For more information, visit www.cnmsocal.org/category/fundraising-and-marketing.html.
- Government funding: Government grants cover a wide range of areas, from the arts and education to community development and technology. A great way to identify and apply for federal funding is through www.grants.gov, a clearinghouse of grants from numerous public agencies. For state and local grants, a search of agency websites can be useful, as can low-cost subscription services such as www.findrfp.com. It’s important to note that government funders are typically the least flexible (i.e., your services must be an exact fit with the stated needs) and often require the ability to closely track and report services and expenditures.
- Corporate gifts: Corporate giving makes up only a very small percentage of overall contributions, so unless you’re in a particularly unique situation, you should not expect this type of funding to comprise a large portion of your budget. Typically the odds are best when your project is aligned with a company’s business objectives. That having been said, corporate funding can be beneficial as it relates to sponsorships of events and activities, securing product for auctions/prizes, and small grants that benefit the local community. Many nonprofits also benefit from arranging volunteer opportunities with employees of large companies in their local area and involving key executives as board members. In addition to providing valuable support, it helps to establish relationships with the private sector.
- Don’t forget that many companies also have matching gift programs. Remind donors of this during the giving process. Be sure to collect employer information (so you can follow up as necessary) and let them know where to submit any paperwork.
- Planned giving: Planned gifts are those made through wills, bequests and trusts. These are frequently larger than annual campaign or one-time gifts and offer the donor a means of ensuring their legacy through an important cause. There are many ways to execute a planned giving program, but the various structures and regulations can get complicated. Engage legal counsel to establish such a program and design it in full partnership with your board.
- Annual campaigns: As the name would imply, these are fixed-time fundraising campaigns that take place annually. They are often board-driven, meaning that the board is actively engaged in soliciting donations and will often jumpstart the campaign with their own commitments. Annual campaigns are usually centered on a specific fundraising goal that is made public. If it’s practical, the beginning and end can be marked with a special event that recognizes donors, engages corporate sponsors, and showcases programs to the media.
- Fees for service: Nonprofits of all sizes use fees for mission-related services to meet programmatic and operating needs. These can include membership dues, publication costs, or fees for conferences, seminars and trainings. For more information on this type of revenue generation, see Legal.
Believe it or not, some nonprofit organizations don’t have to fundraise. For example, those that are supported entirely by membership dues or act as a social enterprise may not need to raise funds beyond those they already have. However, they are always trying to get people interested in signing up or investing in a cause or mission.
So when is it time to start fundraising? The moment you decide there is a mission or cause that requires the support of many to bring about meaningful change. That said, to ready yourself for fundraising, it’s advisable to apply for and gain 501©(3) status, along with tax-exempt status in your own state. This will enable individuals’ donations to be tax deductible and meet the requirements of philanthropic funders. This is especially important if you anticipate ongoing fundraising targeting multiple sources. However, gaining 501©(3) status may not be necessary if you’re considering a one-time event such as a conference or film festival.
Fundraising also requires you to have your finances in order. Having accurate and verifiable financial records is a key consideration for many donors. At a minimum, individuals want to understand how much of their donation is going to the program(s) and the difference it will make. In fact, foundations expect it, along with a higher level of reporting, often including audited financial statements.
This section helps to outline some of the steps associated with developing a fundraising plan and offers resources to support you in that effort. For more information on the legal and financial considerations associated with fundraising, see Legal and Finance, respectively.
Finally, to advance a truly successful fundraising effort, you’ll need to have your brand in order. This is your organization’s identity; it’s who you are. Effective fundraising requires potential donors to be aware of, understand and feel a connection to your brand. This is important: Any development effort conducted before a brand is established is likely to fall flat.
There are many different types of funding, but they usually fall into three main categories:
- Restricted funds are to be used only for a specific purpose. This is the case, for example, when a foundation supports a particular project or you are awarded a government grant to provide a specified service in a specified community. Individuals may also place restrictions on their gift, such as designating it to purchase library books or computers.
- Unrestricted funds are available for use in any way that furthers the organization’s mission (or, to use a fancy tax term, its exempt purposes). It’s often used for operating support, which has been called the holy grail of fundraising, or to cover programmatic shortfalls. These funds typically arise through individual donations and fundraising events, but some foundations also provide such support.
- Bridge funding (also called temporary funding) is used to meet a short-term need when there’s an expectation that the organization will be solvent after the fixed time. This can occur, for example, in the event of a natural disaster, political unrest, or when grants or contract funding are promised but have not yet been received.
It’s wise for nonprofits to have written policies in place regarding how these types of funding are treated in financial books and separately accounted for, and when to decline certain types of funding. For example, expecting a small, restricted donation to support a program that’s not already operational may be unrealistic.
It’s worth noting that these are broad categories of support. Other types of funding – such as endowment support, in-kind contributions, executive loans, seed money, capital funding, program-related investments (essentially below-market-rate loans), capital support, etc. – can also be critical to your nonprofit organization’s success.
How do you define the right mix for your organization?
If there’s one thing the economic downturn has taught us – as individuals or as nonprofit organizations – it’s that diversification is key. Philanthropic and corporate funding sway alongside the economy. In a booming economy, they have more money to give (and in the case of foundations, they have more money that they have to give).
There’s no simple formula that will apply to all nonprofit organizations. For example, an organization that provides job training to low-income people and is customized to meet the needs of specific large employers is likely to cultivate more corporate funding than the average organization. A scientific research institution may rely largely on government funding. Nevertheless, it’s a safe bet that you shouldn’t be putting all your eggs in one basket. The most important thing is to achieve a balance of funding that’s reliable, flexible and diversified enough to meet your needs.
A good starting point is to look at where charitable contributions come from. According to Giving USA 2011 by the Giving USA Foundation, charitable funding in 2010 (the most recent year available) broke down as follows:
- Individuals: $211.8 billion (73%)
- Foundations: $41 billion (14%)
- Bequests: $22.8 billion (8%)
- Corporations: $15.3 billion (5%)
These are charitable contributions. According to The Nonprofit Sector in Brief: Public Charities, Giving, and Volunteering, 2010, by the Urban Institute, government sources account for 32 percent of total nonprofit revenue and more than 24 percent of fees for service (such as through Medicare and Medicaid).
Therefore, your best course of action is to take a close look at your own sources of funding, your organization’s unique resources, as well as funding trends in your specific area of focus. It’s also important to understand who you’re competing with and where their funds are coming from. These insights will give you a good sense of the right funding mix for your organization. From there, you’ll want to establish goals and adjust strategies to meet your needs.
Your plan is a road map that outlines your approach to fundraising via any (or all) of the fundraising sources we describe in this section. One of the most important aspects of any plan is the case statement. This should succinctly explain why your issue and organization are great investments for a funder. It might, for example, point to research that demonstrates how effective your type of intervention is from an economic, health and/or social standpoint. It should also serve to differentiate your organization, implicitly conveying why donors should give to your organization above all others. The power of this message, and your ability to constantly communicate it, will underpin all of your fundraising efforts.
The fundraising plan also outlines who you’re going to target, for what programs and for how much. Importantly, it aligns with your mission, identifies the strategies and tactics you’ll employ to connect with prospects, and sets a timeline for implementation. Done properly, the plan can be a critical roadmap to determine where you want to go and how you’re going to get there. Your fundraising plan is an important test of whether your overall organizational plan is realistic, as it sets the direction for your staff and also serves as an important tool to engage your board.
It’s useful to separate your plan into types of donors (e.g., foundations, high-net-worth individuals, the public, etc.), as the strategies for reaching each of these will vary drastically. Once you’ve identified the types of donors you’ll be targeting, identify them specifically. This won’t be practical in the case of the general public, but each of the other areas should be populated with specific individuals and organizations you plan to approach. Try to be thorough; but remember, you can always add to these in the future as new opportunities arise.
From there, create a strategy for how you plan to reach your prospective donor. This should be a blend of the funding needed by the organization and the interests and desires of the prospect. For example, if you’re developing a new web-based educational platform, your message to an education funder might be quite different than your message to a technology company. The latter might be more interested in the technology component than the content.
For each fundraising activity, outline the tasks required, timeline, lead staff, implementation cost and fundraising goals. This will establish a system to which individuals can be held accountable and give a good picture of the amount of staff or board effort required.
One other thing: Most states require you to register if you plan to solicit funds there (and this can get sticky if you’re raising money online). The Multi-State Filer Project, organized by the National Association of State Charities Officials and the National Association of Attorneys General, eases that process with the Unified Registration Statement (http://www.multistatefiling.org/) – a single application that’s accepted by all but three of the states requiring registration.
Remember! Before you develop your full plan:
- Start with your mission, organization plan and budget, and outline the programs and services for which funding is sought.
- Review historical data (past budgets and fundraising efforts) to estimate future needs and identify where you have or have not been successful.
- Determine your fundraising goals for each program and for operating costs – these will arise out of your operational budget.
- Assess sources of previous funding and establish realistic goals to diversify your funding base if necessary.
How can/should they be involved?
Board members’ specific roles vary from one organization to the next, depending on the nonprofit’s needs and structure. Broadly speaking, however, there is usually an expectation that the board will play some role in fundraising. The trick is ensuring that the nonprofit staff and board members have the same expectation.
Your board members should be actively involved in the development of your fundraising plan. They can be some of your best resources in terms of making introductions, and many times they have business expertise that can be useful in developing a sound plan.
The specific role your board will play should be a key part of your fundraising plan. If you don’t have one already, develop a board fundraising policy in partnership with the board. This establishes the amount each director is expected to give and/or raise, the process for waiving the requirement (for example, if your board includes clients), additional expectations (such as captaining a table at an annual dinner) and the range of ways in which board members can support fundraising.
In addition to committing funds, here are a few other ways your board members can be involved
- Identify new prospects and opportunities for fundraising
- Identify and cultivate high-net-worth donor
- Sell tickets to an annual dinner or event
- Make introductions to potential donors and corporate sponsors
- Host special meetings or events
- Accompany the executive director to key meetings with potential donors.
It’s important to recognize that not all board members are going to be experienced fundraisers. In fact, some of them may resist the idea. Work with each member to identify the ways she or he is most comfortable bringing resources and people to the organization. It all starts from the mission and speaking from the heart about the difference being made. Consider offering training sessions to increase your directors’ capacity and comfort level. The Center for Nonprofit Management (www.cnmsocal.org) and BoardSource (www.boardsource.org) offer a number of trainings to address these issues. And for a free approach, try role-playing exercises at your next meeting or retreat. They can provide a great way to understand (and refine) the messages being delivered and boost confidence.
First, let’s define communications. Fundamentally speaking, communications is any activity that enables you to speak outwardly to your stakeholders – e.g., current and potential donors, volunteers, beneficiaries, community leaders, the media, your staff, etc. It allows you to tell a story about your organization, convey why you’re necessary, establish how you’re different from everything else out there, and identify the value you provide to your target audiences.
Communications is fundamental to fundraising. Individuals are often driven by an emotional connection to an issue. Foundations are more likely to fund (and better yet, seek out) an organization they have heard of. Corporations seek projects that enhance their brand, boost the bottom line, or raise employee morale (as with a volunteer effort). All of these things can be achieved through communications.
That’s why a communications strategy is critical. It identifies where you want to be and serves as a roadmap for how you’ll get there. Importantly, it also lays out what you want to communicate to achieve your objectives, and to whom you will communicate it.
Social networking is a perfect example of a communications function that can support fundraising efforts. This is a place where you can engage people who care about your issue and organization. But how are you doing so? Are you providing consistent opportunities to be part of your issue? Are you sharing news articles that keep people apprised of important happenings, whether or not you’re mentioned? Are you acknowledging donors – large and small? Are you responding to people who have tweeted positive messages? Are you telling the story of your organization and beneficiaries? If you aren’t, you should be. These are examples of activities that not only help to build awareness of your organization, but create an ongoing connection with past, current and potential donors.
Relationships are everything – whether they’re developed electronically, in print or in-person – and strategic communications can help you develop them. That’s why we’ve devoted a whole section of this site to the topic. Check out Marketing & Communications for more on how communications can advance your objectives.
First and foremost, follow the rules. It doesn’t matter how dedicated you are to your mission or how important you believe it is (and, yes, it probably is), every foundation has funding guidelines and straying from them is a waste of everyone’s time. If a funder donates exclusively in Louisiana, don’t apply if your organization is based in California. If they request a two-page letter of intent, don’t send three. And, make sure to send all requested attachments. Anything else will quickly result in a trip to the recycling bin.
Once you’ve committed to following the guidelines, here are the things you need to prepare for a successful grant application:
- Clearly define the program or activity for which you are requesting funding.
- Set your funding goals, research and identify appropriate funders, and learn as much as possible about the prospect.
- Define the need for your project among the community being served; describe the potential impact specifically.
- Define your program’s connection to the foundation’s goals and values.
- Develop a program budget that spells out income and expenses.
- Identify how much money you need and your plan for raising it, and lay out how much has already been committed (note: it’s a lot easier for a funder to commit $100,000 to a $10 million project that’s 80 percent funded than 0 percent funded).
- Be clear about what success will look like and how you’ll know it has been achieved.
- Prepare your organization’s financial statements.
- Collect beneficiary testimonials, articles, awards or recognition.
- Identify potential references for funders that may require them.
- Prepare the most typical proposal attachments, including a board list with affiliation.
With these in place, you’ll be in a good position to develop turn-key information for grant applications and make a strong case for why your organization is a good investment. From there, it’s a matter of deciding where you’ll apply and customizing the application to meet a specific funder’s requirements.
You should also know that a number of grantmaker associations have developed common grant applications that enable grant-seekers to submit one application to multiple organizations. The Foundation Center (www.foundationcenter.org) provides a list of associations that accept a common application.
Online giving is simply the act of donating online. This can be done on your own website, through a third party or by mobile phone. Online giving is the central component of e-philanthropy, which uses technology (mainly the Internet) to connect people with opportunities to donate money or find volunteer opportunities. Another important aspect of e-philanthropy is using technology to maintain relationships with donors, supporters and volunteers. Many organizations are successfully interacting with their stakeholders through social media.
e-Philanthropy can be an extremely cost-effective way to fundraise and connect with your audience. There are several services designed to help nonprofits get started. For example, Network for Good (www.networkforgood.org) is a subscription-based service that processes donations, provides an e-newsletter service and enables people to give directly to your organization. GlobalGiving (www.globalgiving.org) is another forum that enables people to contribute to more than 800 projects featured on its website for a 15 percent fulfillment fee. Facebook also offers a resource site for nonprofits, including success stories, applications, plug-ins and suggestions for maximizing your presence on the site.
As for mobile campaigns, these are easier now than ever. You’ve probably seen ads to text “give” to a short phone number (called an SMS short code) to automatically have a $5 or $10 donation added to your cell phone bill. These have been particularly prevalent during natural disasters, but many nonprofits are integrating mobile giving into their regular fundraising efforts.
Wondering how to get started with your mobile campaign? Fortunately there are a few organizations that have already put the technology in place and made the necessary deals with wireless carriers. Check out the mGive Foundation (www.mgivefoundation.org) or the Mobile Giving Foundation (www.mobilegiving.org) to see if this might be part of your fundraising mix.