If your nonprofit was a startup, you might ask yourself whether diversifying nonprofit revenue sources can increase profits and sustainability.
In order to answer that question, you must first understand what diversified revenue is and how it relates to nonprofits. Diversified revenue is a risk-reduction strategy that involves adding multiple revenue streams to your funding sources.
Alternative revenue streams can help keep your nonprofit running in the black and not the red.
It has been found that nonprofit organizations that post the biggest revenue gains, diversify their business model by devoting more resources to marketing, fundraising and events. If you are raising 90% of your funds from one type of funding source, then you are putting all your eggs in one basket. Plan ahead and allocate your resources to developing diversified streams of revenue.
Successful non-profits strive for diversity in funding. They look for ways to decrease the proportion of their funding that comes from foundations, and to raise the amount that comes from their community directly through sponsorship, events and individual donations.
To put this strategy in motion, nonprofits can develop a comprehensive, long range plan to build multiple sources of revenue.
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Steps to Create Your Sustainability Plan
Sustainability planning requires 5 steps to increase your chances to thrive and survive:
- Ask yourself questions to determine your organization’s purpose and find out where it stands in relation to the needs of the community is serves.
- Build your case for support – Identify, explain, share, define the problem(s) addressed by your organization then ask for support.
- Develop strategies for establishing partnerships and partner with organizations that are compatible and will enhance your services.
- Develop strategies for maintaining partnerships.
- Develop earned income strategies to ensure a reliable source of income.
Many nonprofits are heavily dependent on philanthropy. But, philanthropy alone is no longer sustainable for most growing nonprofit organizations. Developing a sustainable funding strategy should be a priority as you budget, plan and prepare for the future.
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What does it take to diversify revenue?
Key skills that will lead to sustainable growth through diverse revenue:
- Adaptive – Ability to monitor, assess and respond to, and create internal and external changes
- Leadership – ability to create and sustain a vision to inspire, to model, to prioritize, to make decisions, to provide direction, and to innovate — all in an effort to achieve your mission.
- Management – ability to use resources effectively and efficiently.
- Technical – Resources (skills, experience, knowledge, tools, facilities, technology, etc.) needed to implement all programmatic, organizational and community strategies.
Sustainable organizations exhibit leadership that is visionary, strategic, inclusive, decisive, inspirational, motivational and accountable.
Successful nonprofits strive for diversity in funding. They look for ways to decrease the proportion of their funding that comes from one source. Their goal is to increase the amount that comes from their community directly through sponsorship, events and individual donations.
Similarity between For-Profit Business and Nonprofits
Just like diversifying can help businesses weather tough times by providing alternate sources of revenue in the event that one funding source dries up, nonprofits face the same challenge. Successful companies survive for long periods of time by finding new sources of revenue as the market evolves.
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By following this type of strategy, nonprofits can grow and become more sustainable. This can help your nonprofit have nonprofit revenue options in place when needed for survival, growth and sustainability.
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Did you find this article useful? We welcome your thoughts and comments.
Gayle L. Gifford, ACFRE says
I was wondering what data you had for your first assertion that nonprofits that post the biggest revenue gains have diversified income. The only study I know of that looks at this is the one conducted by Bridgespan “How Nonprofits Get Really Big.” They looked at nonprofits founded after 1970 that had grown to over $50 million. What they found was exactly the opposite. Those organizations found the funding source that worked best for them and got really really good at pursing those dollars. The dominant funding source accounted in most cases for 90% of their revenue stream.
Joseph Scarano says
Thanks for your comment and question. Our data came from the Knight Foundation report that looked at the sustainability of nonprofit news entities and the bottom line. The report concluded that they have to broaden their revenue streams and seek out new ways of attracting public support.