Dear Nonprofiteer, Diversify this!

Dear Nonprofiteer,

My Board is at me constantly to "diversify our funding sources."  I don’t know what the hell this means, as I’m already writing enough grant applications to demolish several old-growth forests a year.  What am I supposed to do to satisfy them?

Signed, As Diverse as I Wanna Be

Dear Diverse:

The best way to satisfy a Board is to tell it, "You’re right"–so do that.  "You’re right, we do need a more diverse group of funders," you’ll say, "starting with the diversity of people in this room."  Though you’ve probably read your Board right–that its members think "diversify your funding sources" means "file more grant applications"–you shouldn’t pass up this chance to educate them to the contrary.  The phrase actually means just the opposite: to reduce the significance of grants by attracting support from new sources, especially individuals.  And the first individuals to pony up should be the ones who sign your tax returns.

But your Board is only where you start an individual-giving program.  Ask Board members to give, and ask each of them to recommend one new person as a target of solicitation.  But also go to your client/audience/student/patient list and see who’s already giving you money who can be asked for more, or who isn’t already giving you money who could easily afford to do so.  Take a look at the donor lists of agencies who do similar work and ask yourself, "If that person supports the symphony, why not our chamber group?  If he’s contributing to the Lung Association, why not to our tuberculosis-recovery program?"  Examine the list of people who’ve attended your benefit events and see how you can continue to cultivate their support.  If you haven’t thrown a benefit event, think of something that sounds fun and invite everyone whose address you can find.  Each of these is a step towards a comprehensive individual-giving program, and individual giving is the most important component of a diversified funding stream.

The other meaning of "diversify your funding sources" is "find sources of earned revenue to supplement donated revenue."  Not every nonprofit agency can be a revenue-generator (our "social entrepreneur" friends to the contrary notwithstanding: if curing poverty were profitable it would long since have been done), but every agency that does generate revenue should regularly revisit its pricing structure.  The Nonprofiteer once analyzed earned income at a local YMCA and discovered it was subsidizing its health club by overcharging for rooms in its hotel.  Given that the health-club members were middle class and the hotel occupants were men on Social Security disability payments, this was neither mission-appropriate nor financially wise.  If you charge for any of your services, make sure you’re charging what the market will bear–while factoring in the extent to which a nonprofit’s "market" consists of people who will simply go without services if they’re priced too high.

It is a good idea to diversify sources of funding, so that a change of mind in a single executive office somewhere doesn’t leave you begging on the street.  But the solution isn’t to seek more and more and more executive offices in which to prostrate yourself; it’s to figure out a judicious system for picking the pockets of individuals.  Good luck!

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5 Responses to “Dear Nonprofiteer, Diversify this!”

  1. Alicia Says:

    Hi All,
    This question is one that a huge number of nonprofits face. I’d like to introduce you to an exciting initiative that I thought would interest this community, especially those involved in the nonprofit sector. One of the biggest, if not the biggest, obstacles faced by nonprofit organizations in achieving maximized social impact is money. Ashoka’s Citizen Base Initiative http://www.citizenbase.org works with these nonprofits and social entrepreneurs to free their reliance on traditional foundation grants and government aid by inspiring them to tap into a broad citizen base. How do they do this? You can read inspiring success stories on our website. Please pass this on to anyone you know who works in the nonprofit sector and faces this challenge of lack of resources!
    Please feel free to send us a message with any questions or to further discuss at alevine@ashoka.org

  2. Gene Finley Says:

    Just a quick idea. Wealth managers such as Wilmington Trust, Northern Trust, and many other small boutique firms also manage the foundations of their wealthy clients. Most keep a list of grants that are available. If you approach them, you’ve solved a problem for them because otherwise, the brokers have to come up with the grantees themselves.

  3. Nonprofiteer Says:

    As far as I can tell, CitizenBase is an internet version of what any good individual-gifts fundraiser does–identifying people who should be interested in the work of an agency and educating them about the agency. It’s a good idea but for most small local nonprofits the same thing is better done face to face than over the Internet. That’s my prejudice anyway: the best proselytizing about anything is done face to face. When Board members resist my recommendations for taking prospects out to lunch and asking them for money, saying they can raise $500 just by picking up the phone, I respond that this means they could raise $5000 if they bothered going face to face. Donors are people who like to be attended to; if we spend the time, they’ll spend the money.

    The idea about reaching out to wealth managers is a wonderfully innovative one. The more nonprofits put themselves on the radar of the gatekeepers (pardon the mixed metaphor), the more money will flow to them. Many family foundations are indeed agglomerations of wealth looking for an outlet (that is, the product of tax planning rather than sophisticated charitable thinking), and would benefit from guidance given by advisers who’ve in their turn heard from charities.

  4. Bill Huddleston Says:

    The Combined Federal Campaign (CFC) which is the Federal government’s workplace giving campaign, is America’s largest source of unrestricted funds. Through the CFC, Federal employees have donated more than 1.2 billion dollars to local, national, and international non-profits over the past five years.

    There are 277 regional CFCs, and if you are located in an area with a significant Federal presence, it can be one of the diversified revenue streams that your looking for. The local applications are due in March and April. The CFC regulations were streamlined in 2007 so many non-profits that would not have qualified before, are now eligible.

    Bill Huddleston, CFC Expert
    http://www.cfcfundraising.com

  5. Nonprofiteer Says:

    Excellent suggestion. It’s easy to forget the workplace giving campaigns, especially in light of the much-publicized decline of the United Ways; but nonprofits in search of new money should remember them. My only quibble is that (as I understand it) nonprofits don’t get access to the names and contact info of workplace donors, which they would need to convert one-time or small-bore donors into big sustaining givers. But money from any source is welcome, and perhaps there’s a way for nonprofits to cultivate workplace donors and bind them more closely to the agencies they’re supporting through their CFC or United Way gifts.

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