Tips for Widening Your Funding Net
The job of the board chair, executive director or lead officer in any nonprofit is to create a steady and reliable source of funding for the organization. But the pressure of daily events can make this goal seem unattainable.
In the Network for Good webinar "Broadening Your Fundraising Net: Diversifying Your Fundraising Channels to Build a Financially Healthy Organization" in late April, Cindy Adams, president and CEO of GrantStation, discussed how organizations can diversify fundraising income streams to help become financially healthier. She looked at how and why organizations should assess their existing revenue streams, ways to boost the bottom line by building on what you already have, and best practices for developing a funding plan. She also recommended some practical assessment tools.
Adams recommended taking a step back from the daily grind to assess where your organization is today in terms of existing revenue streams and talk about how you might diversify.
"Knowing where the money comes from to run your nonprofit is almost as important as understanding how these sources affect the sustainability of the organization," Adams said.
Take 45 minutes or so and create a profile of your revenue streams by looking at all the income streams in your operating budget and listing them on a spreadsheet, along with the amount of income for each. Then use those figures to create a visual of your income streams, e.g., a pie chart, that will help in talks with your board, volunteers or other staff about the need to diversify your income.
"You want to use the profile you create, along with some basic fundraising rules of thumb, to help your board, your staff and your volunteers really understand the need to diversify and which areas of fundraising you want to focus on next year, because you can clearly see where the money is coming from," Adams said.
A diverse income stream might have about seven different sources of revenue, including grants, earned income and individual donors. That's what organizations should be shooting for, Adams said — a profile that has a lot of different income streams where no one has a dominant piece of the pie. But she said many organizations she's worked with go through this exercise and develop a chart that has only two or three sources, often with state or federal funding as a source.
Each organization should come up with its own variations on these, but some rules of thumb — or what Adams called a "reality check" — for diversifying income streams include:
- Have at least four or five different types of funding sources.
- Between 30 percent and 50 percent of income should come from individuals.
- With the exception of individuals and earned income, no single source of funding should exceed 25 percent of your annual income.
- Seven percent to 15 percent of an organization's annual income should come from businesses/corporations.
- Earned income/nonprofit enterprise should make up 10 percent to 15 percent of your annual income.
- Special events should generate 10 percent to 15 percent of your annual income.
- Grants from private grantmakers should make up about 5 percent to 10 percent of your annual income.
After you have developed the pie chart and created a reality check sheet, do an income source assessment where you itemize the strengths and weaknesses of each income source and talk about ways to improve it.
"Don't be scared to drill down," Adams said. "Really try to drill down and have a conversation about the weaknesses in these programs."
Then incorporate all of these findings into a strategic funding plan, which should have objectives and a strategy for each objective.
"Objectives are quantifiable and measurable; the strategies are how you achieve your objectives. And your plan of action really coordinates the two," Adams said.
For example, if the objective is to increase membership income by 15 percent over a 12-month period, some strategies to achieving this that Adams suggested are:
- Increase the annual membership fee for individuals from $45 to $55
- Increase the total number of members from 450 to 525
- Establish a monthly pledge program with an automated payment component
From these objectives and strategies comes the plan of action, which the organization's fundraising team will implement. The keys to establishing a solid fundraising team that can tackle the plan of action, Adams said, are:
- To develop a job description (very short) for the various tasks that need to be accomplished.
- Recruit volunteers to fill these jobs — maybe as many as 20.
- Create a working group for each objective.
"The idea is to connect folks with diverse skills and interests that can help you address all the areas you need when you're trying to raise money," Adams said. "Select team players carefully, and instead of looking for those individuals who are already on the board and contribute all the time, find individuals for whom this may be the first or the second time they've ever volunteered. Young people with passion and energy, or you look for older people with time and strong goals."
Also be sure to have one representative of the board on the fundraising team who will report back to the board. And make sure volunteers are working in areas where they are comfortable and using their skills.
Adams ended the webinar by sharing some free tools and resources to help organizations assess their current situations and develop a smart strategy to broaden their funding bases. Some of the tools she recommended are:
- A user-friendly board fundraising assessment form from Capital Venture;
- A Point K Organizational Assessment Tool from Innovation Network; and
- An online guide from the National Council of Nonprofits
"If you don't look clearly at where you are today, and all the different parts of your organization, it's difficult to move the organization forward," Adams said. "And, in fact, you may move it forward in the wrong direction. So you really want to take the time [to do this]."
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