Nothing Can or Should Substitute for Philanthropy

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I’m worried by what I see as an excessive focus on generating revenue by nonprofits.

There’s a new old chant in town: “Let’s start a business where customers buy stuff and then we won’t have to rely so heavily on donations!” Articles proclaim that nonprofits are “finally wising up.”

It seems like people are promoting revenue as “better than charitable contributions.” Somehow, reliance on donations is seen as somewhat demeaning.

Even the term “nonprofit” suggests—in our capitalistic, profit-driven society—that to be nonprofit is to be lesser-than.

(As an aside: Notice the trend of foundations to hire for-profit business leaders as CEOs. The message is that there is nothing unique about the nonprofit sector; there is no special knowledge or skills needed. Nonprofits, including foundations, are so incompetent that they have to hire for-profit business leaders to get fixed better.)

In summary, the equation seems to be: Revenue is better than charitable gifts. Customers produce revenue, so customers are better—better than donors.


Generating both revenue and charitable gifts

But wait! Let’s step back a moment.

Since time began, many nonprofits have generated both revenue and charitable gifts. So the “new” news is pretty old. But now this old new news seems more shrill. And I think the chant is somewhat egregious: Moneymaking entrepreneurs sneering about how to start business ventures.

Theatres and symphonies produce revenue by selling tickets and refreshments. Museums generate revenue with admissions and gift shop sales. Colleges and universities charge tuition. Hospitals charge fees paid by insurance companies and government contracts.

In addition to revenue streams, these organizations run fundraising programs that garner charitable gifts. When I worked at Trinity Repertory Company, one of the top regional theatres in the U.S., we generated 70% of our income from revenue and 30% from charitable gifts. Nonprofit hospitals, on the other hand, may get only 10% of their income from gifts.

Revenue is great, as are the customers that produce the revenue. Nonprofits that can generate admissions, sales and the like may well enjoy a more balanced financing stream.


Uniqueness of nonprofits/NGOs

But nothing substitutes for donors and their charitable gifts. I repeat: Nothing substitutes for donors.

And not because of the money. Donors are different than customers.

The uniqueness of any and all nonprofits is philanthropy, voluntary action for the common good. Voluntary action for the common good…the uniqueness and, yes, the strength of nonprofits.

Individuals, families, businesses, service groups, and faith groups giving their time and/or their money to build strong communities. Moms and dads and little kids and teens volunteering in the soup kitchen and cleaning up rivers.

People with a little and lots of money giving gifts to help others. The woman who sent a few dollars to help a charity. The school kids who sent all the pennies they collected. The banker, the janitor, the nonprofit executive director, the pastor—all sending donations to causes they care about. And sure, Bill and Melinda Gates are giving, too.

Voluntary action for the common good. Nothing substitutes for these donors. I say “these donors,” not their gifts. Again, it’s not the money; it’s the donors. It’s the meaning of donors investing, committing, engaging in a cause.

Donors worry about the lives of others and the state of the world. Donors want to make a difference. And nonprofit charitable organizations are the means by which donors make that difference. Nonprofits/NGOs are the conduit for donors to live out their feelings and fulfill their aspirations.

Nothing can substitute for these loyal donors. Nothing can substitute for voluntary action for the common good, not even buying things.


Customers and donors

Sure, revenue is good, but it doesn’t substitute for charitable gifts. Sure, customer loyalty is great.

For example, I’m an ardent Apple fan. I’m a very loyal customer.

But in a tough economy, I may not buy the newest iPod or the even newer laptop, which is so cool and better than the one I have.

I was a loyal customer of Michigan State University, my alma mater. But I’m not a customer any longer. I am, however, a donor. I’m a loyal donor. I’ve made a bequest in my will to MSU, too.

Loyal customers are wonderful…those Apple buyers and Trinity Repertory Company subscribers. But the Trinity Rep subscribers who are also donors—now, that’s really something.

Customers and donors are not interchangeable, not even the really loyal ones. Yes, customers and donors have much in common. Just read Adrian Sargeant’s book, Building Donor Loyalty. But customers and donors are not exactly the same.

Loyal customers can be affected by the economy. Customers can move on once their needs are met, or in search of product enhancements.

Ticket buyers may not buy tickets to the most challenging and controversial plays, even though that’s the mission of the theatre. Donors allow the theatre to fulfill its mission rather than produce popular plays only. (Popular plays, subject to customer whim, is called “Broadway.”) Donors give beyond a particular play because they’re committed to mission.

Donors give in tough economic times. Donors increase their gifts without the expectation of goods and services.

Donors can be forever, even after death.


Fundraising events aren’t as good as charitable gifts, either

Nothing substitutes for donors. And there’s a parallel in fundraising itself: Nothing substitutes for charitable gifts, not even ticket purchases for fundraising events. Fundraising events cannot substitute for requesting a donation.

The reality is, buying a ticket to an event is usually about attending the event. If people aren’t interested in attending the event, they may not buy the ticket. And most fundraising events have no real connection to the cause anyway; the event is just about making money. (Don’t even get me started on golf events!)

Also, in my experience, the economy affects fundraising events more than the economy affects charitable giving. Corporations back off of event sponsorship, but still may give a gift. Individuals don’t buy tickets to events when times are tough, but these same individuals will still give a donation.

The ticket is equated with the event. A donation—with no goods or services exchanged—is about the cause.

So beware of too much focus on fundraising events. Spend more time on charitable gifts and donors. Beware of too much time focused on revenue generation—or overreliance on revenue, which is subject to the whim of customers.

Nothing substitutes for donors. Nothing. Ever. Never.


  • michael

    I’ve not heard many frame it as an either/or proposition. Donors matter, but so does earned income. An additional benefit is that having a market-based revenue generating business can change the organizational culture to be more customer friendly….that includes service clients. It also instills managerial discipline upon sluggish nonprofits.

  • Donna

    The world we once knew has changed. I agree that some NFP missions are best served by donor funding. In the past, I would have listed feeding programs as one of those programs, but now food is apparently an “entitlement” that some in this country feel not everyone deserves. Members of our Congress are voting to reduce the already paltry food stamp allowance.
    In 2008, at a time when public need was at a peak, most NFP’s were underfunded and underwater. Services ceased as most organizations struggled to meet payroll and pay debt. Contributions dwindled, pledges went unpaid, and NFP’s stood in line with everyone else to get a sliver of government assistance. This week, I found these figures at Forbes.
    Only 3% of the nation’s largest NFP are self-sufficient; 80% are more than 75% dependent on grants and contributions to perform community services, 36% are 100% or more dependent on outside sources for their existence. 24% of our largest NFP’s rely on grants and contributions, not only to provide services, but also to pay their administrative expenses.
    Grants are becoming more restrictive and more of them are designed for universities and developers, leaving social services and those of us without political connections in the dust. Tax laws can change overnight. We can count on corporations to put the interest of their shareholders ahead of everyone else when times are lean.
    If our goal is to provide services to those who need them when we are needed the most, we need someone with the skills to develop a strategy to accomplish this. During this past crisis, NFP’s not only shut their doors for services, one of the largest NFP religious organizations in this country, with physical assets in excess of $4 billion, was forced to lay off staff because they had no cash flow to meet payroll. These employees did not qualify for unemployment benefits. That was, in my opinion, grossly irresponsible. I pray something like that never happens again.
    I feel that we have a duty to the public to provide services in times of crisis. If that means we must operate more like businesses, I believe we should move in that direction. I am not opposed to business leaders running NFP’s. My view of donations is changing. Donors have expertise, infrastructure, in-kind items… which are far more valuable that cash.

  • Sean McGee

    I agree with the author – to a point. Donors are more than revenue (as Ms. Joyaux so clearly articulates in her article), and they are a vital, fundamental component of a healthy social-impact organization. By the same token, donors are not the only source of revenue and support, and their contributions should be supplemented with grants, earned income, and any other sources of support that make sense for the individual organization.

    Earned income, social enterprise, customer revenue, (or whatever else you care to call it) is not the sliver bullet that will solve all of an organization’s problems, or even fulfill all of its financial needs in the vast majority of cases. It can be, and in many cases already is, an important additional source of revenue. Diversification of income streams is an important strategy, as it hedges against changes in any one stream of income.

    I do take issue with the false dichotomy presented here. I don’t see this as a question of “Donors OR Earned Revenue”, but rather as a question of emphasis or priority between Donors, Grants, Earned Revenue, etc. The balance between different revenue sources will vary from organization to organization, but each should make its own intentional decisions about where to focus revenue-generating resources and efforts in order to maximize its mission impact.

    Declaring any one solution to be the best, or the most important, for every organization does a disservice to all organizations. We should have as many tools in our toolboxes as are needed to ably serve our respective mission imperatives.

  • Terry Fernsler

    I am fascinated that the commenters each interpret this article as an either-or piece. I had to re-read the article to find where that dichotomy exists, and could not find it anywhere. Perhaps my familiarity with the nonprofit sector allows me to interpret it differently.

    I have seen a recent bias in nonprofit fundraising toward earned income, and even more toward event fundraising, a trend I thought (perhaps hoped) would reverse itself during the Great Recession. Instead, I see even greater reliance on events. I’ve noticed, with many people newly entering the nonprofit sector, much discomfort with making asks. I am troubled that rather than acknowledging the value of donors and learning to work with them, these new staff are resorting to a less direct approach. Nonprofits are complex systems, much more so than businesses. Nonprofits not only have more stakeholders, but many of those stakeholders have equal value; businesses may have multiple stakeholders, but the most important are the owners. This allows businesses to ultimately focus on easily-measured purposes (profit). Nonprofits are stewards of a slice of the commons (yes, not everything has been privatized yet), which makes their purpose complex, and correspondingly how they operate more complex. As stewards of a slice of the commons, participation of (their) community members is necessary. Thus, there is NO substitute for donors.

  • Bonnie Osinski

    Thanks Simone!
    I see your article as a reaction to those who see earned income as the answer to nonprofits’ fund development problems.
    Some nonprofit earned income ventures do work, However too many nonprofits do not take into account the amount of expertise, time, and financial capital required to get even a small venture off the ground. And how long it can take before it actually generates a surplus. And how many for-profit businesses of all kinds fail.
    I have worked with organizations that ran profitable earned income ventures. Tae ones that were successful were large national organizations, who thrived because of long-established name recognition and because they could take advantage of economies of scale – very much like franchising.
    Yes, raising philanthropic dollars takes a lot of work, but so does running a business.
    I see donors as a power base. Donors will give your mission a strength that no earned income venture could ever generate.
    So, while it may not be an absolute “either/or” , a nonprofit organization should think very carefully about investing resources in earned income ventures instead of using them to build strong donor relationships.

  • Simone Joyaux

    Thanks, everyone, for your comments. I’ve been on vacation and presenting at the Slovak-Czech fundraising conference in Bratislava.

    My column is NOT either/or. There is no dichotomy here. I embrace both and say so. Earned income is wonderful. Go for it whenever possible as long as it doesn’t compromise mission. Obviously, hospitals and theatres and museums and schools and many others produce earned income. Yippee.

    But, earned income does not substitute for donors. Donors are as important as earned income. Philanthropy is voluntary action for the common good. So that is the volunteering and giving money perspective. Charity boards are not paid for board service. Despite earned income, charities need charitable gifts, too.

    Too often, I see the same bias that Terry notes: fundraising events (purchasing an event is different that giving a charitable gift that has no “personal benefit”) and revenue — to the detriment of donors. (And donors are individuals, foundation grants, etc.) Too often, regional theaters do too much “popular” theatre to increase earned income rather than do risky plays that are not so popular. Museums do the same.

    By the way, I don’t like the term “earned income.” That suggests that charities don’t bust their fannies “earning” charitable income. I was taught by top-notch auditors to express income in the following manner:
    INCOME: Revenue + Charitable Contributions.

    Thanks everyone!

  • Sharon Charters

    Thank you – interesting article. What I think is perhaps even more important and complex is the role of philanthropy vs. the role/responsibility of government. As a Grants Manager I tend to take a pretty firm line on not using charitable dollars to support projects that are the responsibility of the government, i.e. text books in schools, direct provision of health care, etc. It’s not always clear and not always easy to make these distinctions.

  • Simone Joyaux

    Thanks, Sharon, for your comment. What a smart approach. Government does have responsibilities. And I wish the nonprofit sector — and individual donors and voters and corporations and …. – would push back harder on government to fulfill its obligations to its citizens.

    Also: I’m always dismayed (and just plain angry) at government that pays full price when a for-profit sets a price for a product …. from fighter jets to mercenaries to whatever…. But government sets the price for services from nonprofits. And often that doesn’t cover the cost of the service. So then the nonprofit has to raise charitable gifts to subsidize the service because government won’t pay the full cost.

    Oh wow. I cannot get started on government today. I’m still on vacation and need to keep my head focused on pleasant stuff!