Alternate Nonprofit Funding Models

Tactical Philanthropy is currently covering the Grantmakers for Effective Organizations conference with the help of a blog team. This is a guest post by Carla Javits of REDF.

By Carla Javits

The most unusual thing about the GEO conference is the keen interest of attendees in the nitty gritty business of operating foundations, and nonprofits. As William Foster of Bridgespan noted in his great session on Nonprofit Funding Models, most of us get into this work because we’re interested in the programs that help people. We’re not obsessed with accounting. But we also know it’s impossible to deliver great results without great organizations. GEO offers a feast for those who want to contribute to making organizations great.

Foster’s headline: we spend far too little time understanding alternate nonprofit funding models. The revolving door of development officers is a signal that nonprofits often don’t craft strong development strategies before hiring. Instead, groups unrealistically hope that the new development officer will come with a strategy and money tree in hand.

Foster’s session built on an article he wrote for the Stanford Social Innovation Review that outlined 10 models of funding large nonprofits. These were uncovered by Bridgespan’s survey of nonprofits earning $50 million or more per year. One of the main ‘ah ha’ findings was the dependence on a single funding source. This finding flew in the face of conventional wisdom — that diversified funding is the Holy Grail.

However, Foster did note that among these big nonprofits, a few of them aggregated what was essentially local fundraising by chapters or affiliates. In these cases, sources of funding were the diverse mix of ‘usual suspects’ – foundations, individual donors, government. He also noted that the affiliates’ ability to raise money capped out at about $1-3 million. This seems much more in line with the experience of most average nonprofits. It would be great to see Foster do another study of nonprofits with revenue size that is more the norm, to shed more light on their typical funding models. Stage of organizational life probably plays a role too.

Foster offered useful advice to funders. First, pay attention to ‘alternate’ funding beginning day one. Second, better understand the funding that grantees have a chance to get. Find out the success stories of others that have tapped these sources. Third, mobilize capabilities within and outside of funder walls to help nonprofits move the ball on these funding sources. Some of the nonprofits Foster has consulted with – given lead time of a few years — have made changes to systems and even programs to be able to tap larger, more stable sources of funds that are still aligned with their mission.

A final fundraising word from another session I attended where a trade association of nonprofit executives in the UK called Acevo shared the story of their successful, decade long effort to make ‘full cost recovery’ the standard for government and philanthropy. Lively discussion ensued about US nonprofits not knowing what the real ‘full costs’ (including ‘overhead’) are for programs, and funders’ uncertainty about what should be allowed. More to come from Acevo and GEO on this hot topic (well…..as hot as budgeting can be).