Ten Nonprofit Funding Models
The nonprofit world rarely engages in equally clear and succinct conversations about an organization’s long- term funding strategy. That is because the different types of funding that fuel nonprofits have never been clearly defined. More than a poverty of language, this represents—and results in—a poverty of understanding and clear thinking.
Through our research, we have identified 10 nonprofit models that are commonly used by the largest nonprofits in the United States. Our intent is not to prescribe a single approach for a given nonprofit to pursue. Instead, we hope to help nonprofit leaders articulate more clearly the models that they believe could support the growth of their organizations, and use that insight to examine the potential and constraints associated with those models.
BENEFICIARIES ARE NOT CUSTOMERS One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.
Duke University business professor J. Gregory Dees, in his work on social entrepreneurship, describes the need to understand both the donor value proposition and the recipient value proposition. Clara Miller, CEO of the Nonprofit Finance Fund, who has also written wonderfully about this dilemma, talks about all nonprofits being in two “businesses”—one related to their program activities and the other related to raising charitable “subsidies.”
As a result of this distinction between beneficiary and funder, the critical aspects (and accompanying vocabulary) of nonprofit funding models need to be understood separately from those of the for-profit world. It is also why we use the term funding model rather than business model to describe the framework. A business model incorporates choices about the cost structure and value proposition to the beneficiary. A funding model, however, focuses only on the funding, not on the programs and services offered to the beneficiary.
