In my recent Financial Times column on VolunteerMatch’s “growth capital offering”, I state that the organization’s prospectus says that the new capital will fund a plan to make VolunteerMatch self-sustaining and generating an operating surplus by 2012. Reader Jeremy Gregg, who writes the blog The Raiser’s Razor, leaves a comment asking about this claim:
I would be very interested to know how a non-profit can design a plan that meets these standards: we are so used to annual operations plans and short-term proposals that it is hard to envision such a concept. Are they tied to social enterprise and earned income strategies that can make the organization self-sustaining?
The VolunteerMatch prospectus does a good job laying out their self-sustaining operating model. Before I proceed, I should note that other than reading the prospectus and speaking with their president as well as some other related parties, I am not intimately familiar with VolunteerMatch. So please take my comments as my own personal opinion and realize that I am not speaking on behalf of VolunteerMatch in any way.
The VolunteerMatch proposal does not suggest that their model will earn a profit. There are three core areas where they will receive support, 1) payments from corporations that use their corporate volunteer program services, 2) payments from nonprofits who pay for premium access, and 3) reliable ongoing contributions from volunteers who use the network. This is not a “profitable” model, but it is a sustainable model. VolunteerMatch should be able to track what level of donations they can expect from the users of their service (the volunteers) and then count on that fundraising as they bring more users to the network.
A sustainable nonprofit operating model does not mean that the organization must charge for their services. I do not agree with the idea that nonprofits should seek to build models that earn income unless that model is the most effective way to further the nonprofit’s mission. Fundraising can and should be part of a sustainable operating model. Unfortunately, I too often hear of a nonprofit who will generate a loss (as is expected) and then “make up the difference with fundraising”. That is not sustainable. A sustainable fundraising plan should be built into the operating model. Note that VolunteerMatch does not just say that they will raise money; they relate their goals to their experience with their actual user base and then make projections based on certain growth plans.
Fundraising is something that organizations can invest in. The growth capital that VolunteerMatch is looking for is not sustainable funding. It is a onetime investment that will be used in part to build a sustainable stream of fees and donations.
A sustainable operating model that relies on fundraising (as most all nonprofits must, otherwise they should ask why they are not a for-profit), must be able to budget on certain fundraising goals. Not a fundraising budget that is whatever size fills the gap between expenses and revenue, but a budget that is based on reliable projections.
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“The growth capital that VolunteerMatch is looking for is not sustainable funding. It is a onetime investment that will be used in part to build a sustainable stream of fees and donations.”
This is the model I’m working with at Ashoka’s Citizen Base Initiative (www.citizenbase.org) currently done through an idea competition model.
I completely agree that a ‘sustainable’ nonprofit does not mean they must have social enterprises or earned income streams attached to their organization but they do need a base of support that is stable and predictable in feeding resources to the nonprofit (can be money, volunteer hours, in-kind, stable partnerships).
Thanks for taking the time to respond. This is helpful, although I still struggle with understanding how I might adopt these same principles at my organization, Central Dallas Ministries.
Our 2008 operating budget is just over $9 million. Much of that is secure through federal grants and such, but a significant portion — over 50% — comes from charitable donations. We have thankfully increased charitable giving by 20-30% each year for the past few years, but this is hardly a “model” for sustainability.
We definitely put the *faith* in the “faith-based organization” title.
One good example is our health clinic: it’s annual budget is over $2M. About half of that comes in the form of in-kind support from our major partners at the Baylor Health Care System. We also charge about $200K or so per year in fees to clients.
That leaves a sizable chunk — $800K, or 40% — to be entirely funded by charitable gifts. This inevitably causes an enormous drain on the general/unrestricted fund.
I would love to find a way to craft an argument for large amounts of “growth capital” for this clinic, which will soon double its capacity by expanding to a new facility. Without a massive infusion of cash, I am not sure how we can navigate this transition…
Ideas?
Jeremy, your question is a good one. I’ll note that Citizen Base, which Dave mentions above, lists faith organizations as ones with a natural “citizen base” of sustainable support. You should check out the website.
Rather than respond to you directly, I’ve asked the people at Nonprofit Finance Fund to respond to you. Not sure if they’ll have time.
Here are two examples we’ve collected that have dealt with clinics:
http://www.citizenbase.org/en/node/2876
http://www.citizenbase.org/en/node/2879
I do not know the details of the Central Dallas Ministries but perhaps you have a large natural citizen base starting with your church membership that you have not yet fully tapped. I think of volunteer hours, connections to in-kind donations, a built-in marketing team.
We raise about $1-1.5M of our $9M annual operations budget from individuals, and around $200K directly from churches. We are seeking ways to aggressively expand that, but we are not sure if the invest of time and resources will yield the significant capital that we need to fully realize our capacity.
I’ve thought about contacting Good Capital about this, given their interest in healthcare, but am not sure how to build the proposal. The clinic is based on a charitable model, and the fees collected from patients barely represent 20% of the overall costs (not including the doctors and nurses, who are provided by partners).