Editors’ note: This article, first published in print during Jul/Aug 2008, has been republished for Nonprofit Quarterly with minor updates.
Like other crucial questions — What’s the best way to meet someone? What’s the best crop to grow? — this question deserves an answer, but the answer is complicated.
It’s aggravating to have someone say (at a board meeting, for example), “Look at how they over there raise money! That’s better than what we’re doing . . . we should do that!” Or for a funder to tell you what they think is the best way to raise money: from major donors, or from government, or from black-tie dinners, or… you get the idea.
Think for a moment about two very successful stores: Target and Williams-Sonoma. Both sell cookware. Target sells inexpensive cookware through large stores in outlying areas, and it advertises through newsprint inserts in local newspapers. Williams-Sonoma sells expensive cookware through boutique stores in high-rent districts, and it advertises through glossy, full-color catalogs mailed to high-income zip codes. Each has put together a winning formula.
But what if Target were to try selling its colanders and measuring spoons at the same prices that Williams-Sonoma charges? (Would you buy a colander for $60 at Target?) Or if Williams-Sonoma were to try using newsprint flyers instead of its glossy catalogs? Neither choice would work.
So when we ask, What’s the best way to raise money? we need to start by figuring out who are the best potential supporters of our work and why, what those people are interested in, how to reach them, and how much to ask them for.
Before looking at two different strategies for similar organizations, let’s consider for a moment how a fundraising strategy is different from a revenue strategy.
Fundraising is about income that is contributed rather than earned. Fundraising strategies are ones that bring in money from individual donations, foundation grants, corporate contributions, church giving programs, and the funding programs of other institutions. Individual donors give in response to vehicles such as direct mail, special events, galas, telephone fundraising, major individual gifts, annual membership donations, and so forth.
In contrast, earned revenue is earned. Tuitions, ticket sales to performances, magazine subscriptions, and almost all government contracts are examples of earned revenue. If you don’t do the work, you don’t get the money.
A revenue strategy, therefore, looks broadly at the range of possibilities for financial support and combines both earned income and contributed income. For example, a revenue strategy for a preschool might include government contracts, tuitions, donations, raffle, and a walk a thon. A revenue strategy for a dance troupe might include ticket sales, donations, donated space, class fees, and corporate sponsorships. A revenue strategy is a crucial part of any plan for long-term financial sustainability.
The decisions you make about your revenue strategy — that is, who should be supporting your work and how to go about soliciting that support — should be based not only on who is most likely to give you money or pay for your services, but what makes the most sense in terms of who you are, what kind of change you’re trying to make in your community, and how your funding sources can help you get there.
Most nonprofits these days combine earned income (such as contracts, fees, sales) with contributed income. Like Target and Williams-Sonoma, each organization puts together a package based on its core supporters, its connections and positioning, and its cause.
Let’s look at how two after-school tutoring programs raise money:
Program A: Started in a racially diverse church, this program works with low-income kids who come for tutoring and after-school care in this mostly Latino, starting-to gentrify neighborhood. Many of the volunteer tutors and board members are from the church, which draws from many neighborhoods across the city. With several upper-middle-class board members and the active support of the church, Program A raises $80,000 each year through fundraising events and several individual donations of $5,000 each.
Program B: With similar activities as Program A, Program B was started in a similar city quarter by a neighborhood center, itself often struggling for funds. Its volunteer tutors and board members are nearby residents, racially diverse, many in the helping professions themselves, and some well connected to city politics. Coupling the center’s importance to the neighborhood with its board’s connections, Program B is able to obtain a modest annual grant each year from city government. In addition, they receive donations from the electric utility and a local family foundation. Car washes and a raffle raise more community spirit than they do funds, but are still part of the total budget of $80,000.
Both these community-based programs have developed successful fundraising strategies. Of these methods, which is the best? Individual donations? City grant? Foundations? Fundraising event? Corporate grants? The answer (like the answer to most questions) is: it depends.
It depends on the organization’s external environment (the opportunities) and its internal strengths (the assets). Externally, in some cities there are many foundations while in others there are practically none. Organizational assets include who’s involved in the organization — including constituents, board members, volunteers, and staff. Other assets include the relationships the organization has built with other groups and its connections to government agencies, local corporations, and community leaders.
The revenue strategy will be guided by the organization’s philosophy about who should form the core of their support. Finally, the cause itself is important: some causes lend themselves more naturally to certain kinds of revenue. Corporations are less likely to support a prisoner support organization than churches or government might be. Older constituents may be less likely to support international causes than younger constituents. (Note: these are just hypothetical examples!)
Developing a comprehensive revenue strategy also involves choices about which programs to operate, a topic that is beyond the scope of this article. We can, however, look at some, if not all, of the steps that our two afterschool programs can use. An assessment starts with a list of revenue streams and a look at the amount raised, profitability, potential for growth, non-financial impacts, and what’s needed for success.
Even if you don’t think you have a revenue strategy, you already do have some kind of configuration of ways to obtain money. Start by taking a good look at the ones you are already using. In most cases a good first step is to expand the revenue areas where you are already having success and to link your various vehicles together. For example, Program A’s major gifts program, which relies on about ten board members asking their friends for donations, doesn’t take much effort but raises $40,000 each year. In contrast, Program A’s walk-a-thon raises about $5,000 in addition to raising community spirit and enthusiasm. Program A should focus its attention on expanding its major donor program, and it should maintain — but not increase — the walk-a-thon level of activity. They can also link these activities by bringing donors to the walk-a-thon and using the walk-a-thon to identify prospects for larger donations.
In contrast, Program B receives more than half its funding from city government. Program B needs to be sure it continues to have board members who are well connected with city government and who can work to increase that grant as well as to obtain grants from other city departments. (Too often community nonprofits start to neglect the importance of board member connections in maintaining government funding.) Program B has shown it has the writing and presentation skills to obtain some small grants, so a good area for investment of time may be in grant writing. It can continue to do a couple of car washes and a raffle each year, but instead of expanding those areas as fundraisers, they should make sure they do the best job they can of using them to raise spirits and community ownership.
One of these programs has more individual donors and more ability to work with individual donors while the other has more support from institutions (government, foundations) and more ability to work with institutions. When considering a new fundraising effort — such as an art auction or corporate sponsorships — each program will need to start by seeing whether it has the right people and talent on hand, and if not, whether it’s worth starting to develop the abilities needed.
One of Program B’s foundation funders is probably telling them that they should start a major gifts program, just as one of Program A’s donors is probably telling them to get government money. Actually, Program B’s revenue strategy should probably continue to focus on government, while Program A should focus on major donors. Each can consider new strategies carefully, paying attention to opportunities and assets, rather than just trying to find “the best way to raise money.”
In particular, both the board (as a body) and the board members (as individuals) have crucial roles to play in every organization. The board as a whole should participate in creating, modifying, and reviewing the revenue strategy and evaluating how each component is performing. And instead of a “give, get, or get out” approach, each board member will have a role to play in the revenue strategy (not just the fundraising strategy). For instance, one board member may be recruited to bring the organization to the attention of local government agencies for contracts. Another may be recruited to chair the walk-a-thon. Still a third, who “hates to raise money” and works in the food industry, can connect the staff to restaurants that would be interested in buying the organic herbs from your organization’s garden farm.
Just like the Target and Williams-Sonoma example, it may not work to take a page out of someone else’s book. Begin by assessing what your organization has going for it internally and externally, and choose a mix that suits what you’ve got. Then, and perhaps most important, focus on doing well in those areas and recruiting the right board members and others to increase those fundraising areas before spreading out into new ones.
The best way to raise money? The one that has the potential to increase (or at least stay level), and the one that you already have the skills and connections to tap.