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How Do Nonprofit Organizations Get Funding?

Raising funds for nonprofits typically involves asking for donations, but donations aren’t the only way nonprofits receive funding.

Fundraising is varied depending on the organization. They can fund their work in a variety of ways, such as sponsorships, grants, donations, events, and more. Having multiple revenue teams allows nonprofits to raise money when another source doesn’t work out.

Diversifying revenue sources can be impactful, but only if you know what the options are. Here is an overview of some of the ways nonprofits receive funding.

Sponsorships

Nonprofits use sponsorships to partner with other organizations and receive funds. Companies can sponsor a nonprofit as a partnership or for a campaign or event. There is some give and take as a sponsor will expect recognition and promotion of their company or brand. This recognition can be a form of public thank you and displaying the sponsor’s name or logo at an event or the nonprofit’s location.

Nonprofits identify potential sponsors through their board. Members introduce the organization to the business and other contacts, so networking is crucial. However, nonprofits can also reach out to local businesses that care about their cause.

Grants

Grants are given by the government or other foundations to help nonprofits thrive. Grants are typically restricted to a sector, location, or type of program. Nonprofit foundations have to research to find the grants that will be appropriate for their organization. Once they have a list, they can start applying for grants. Applications can be long and complex, so nonprofits have to plan and choose which applications to reasonably work on.

Fortunately, as nonprofits grow, they can hire someone to take on grant research and application duties.

Donations

Donations help most nonprofits operate. For example, donating to Planned Parenthood provides thousands of women across the world with access to affordable healthcare. Donations can be as small or as large as an individual wants to give. There are many different ways nonprofits can receive donations:

  • Online donations: nonprofits have websites that can easily allow individuals to donate any amount of money by entering their card and billing information.
  • Monthly donations: thanks to the internet, many nonprofits can offer monthly giving programs that act similarly to a subscription on Netflix. Individuals can set up an amount they want the organization to receive monthly on auto-pay, which gives nonprofits sustainable revenue.
  • Fundraising: fundraising allows nonprofits to grow their community and promote higher donations. With peer-to-peer fundraising, supporters can create fundraising pages of their own and get their family, friends, and social media followers to donate to the cause.
  • Major donors: major donors are a type of individual donor, but they have the financial means to give more than the average individual. The definition of major donations ranges from organization to organization. For example, small nonprofits might define a major gift as a few hundred dollars, while large nonprofits define it as thousands of dollars. Whatever a nonprofit’s definition of a major donation, receiving them requires a lot of relationship cultivation and communication to receive.

Events

Events are a type of fundraising campaign. Common examples of an event are charity walks, auctions, or galas.

Events

Fundraising events offer organizations the opportunity to engage with the community and local businesses to raise money through ticket sales, merchandise, and donations.

Fundraising events combine many of the different types of revenue streams outlined above. For example, a nonprofits auction may sell tickets to the event, ask for individual donations, sell items in exchange for donations, and solicit sponsorships from local businesses.

Nonprofits need to be aware of expenses, though. Events are one of the most expensive ways to raise money, but they can also bring in more money than other types of sources.

Membership Fees

Nonprofit membership fees don’t work for every type of nonprofit, but it’s worth looking into. To determine if membership fees are the correct source of funding for a nonprofit, leadership will have to consider the mission and main activities of the nonprofit and determine whether membership fees are feasible.

Nonprofits must be able to offer exclusive programs or benefits to members to charge a membership fee. For example, if your nonprofit helps seniors find affordable healthcare solutions, you can ask that members sign up to receive benefits such as free yearly physicals.

Selling Goods and Services

Selling goods and services can help nonprofits get funding, much like it helps companies earn a profit. However, it’s important to note that this funding source is subject to IRS regulations, so leadership should learn the tax implications for selling anything for funding.

Small charities don’t typically lean on this type of funding because it requires time and money. However, if a nonprofit has the resources, it can be a good additional funding source. Nonprofits can sell goods, such as clothing with the organization’s logo on it, to help bring in some additional funding even if sales aren’t high.

Branded clothing can also help increase awareness about the nonprofit, which can bring in even more donations. Other things nonprofits can sell are:

  • Tickets to events
  • Publications
  • Expertise

If a nonprofit plans to sell goods and services, they’ll need to track their income because earned income that isn’t related to the organization’s mission can be taxed.

Final Thoughts

Getting funding for a nonprofit is no easy feat, so many people are often involved in different revenue stream activities. Fortunately, there are tons of options for nonprofits to help them reach their financial goals to continue doing good in the community.

However, no matter how a nonprofit gets its funding, you must know the tax implications that apply to the organization. Nonprofits should diversify their funding sources so they don’t rely too heavily on one source. If you’re handling the funding for a nonprofit, try judging which sources will bring in the most money based on your current financial situation.

If you’re just starting a nonprofit, make sure you have a plan in place for getting funding. A strategy can help you ensure you are financially responsible.

Marné Amoguis
Marné Amoguis

Marné Amoguis holds a B.A. in International Business from UC San Diego. She is a contributing writer at 365businesstips.com where she loves sharing her passion for digital marketing. Outside of writing, she loves traveling, playing music, and hiking.

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