It’s Not All About Money
By: Steve Zimmerman
At its core, the nonprofit sector is about building the type of communities we all want to live in – communities that offer opportunities for all, quality education, meals for the hungry, care for the sick and arts and culture to enrich our lives. There is no one answer to any of these challenges; however, when a collective effort, inclusive of all voices in a community, surfaces solutions, it builds stronger initiatives to achieve them. Why shouldn’t an organization’s revenue strategy be just as inclusive?
Nonprofit Revenue Strategy Narratives
The challenge nonprofits face isn’t holding greater aspirations for communities – it’s funding them. Nowhere in the nonprofit sector is the adage “the grass is always greener” more prevalent than when talking about revenue strategy. Leadership, and in particular board members who are tired of fundraising, are always looking longingly at other organizations, admiring their special events, walks, or social media posts in hopes that one day their organization will have the perceived success of others. Perceived because the reality is that while these methods generate awareness, if the true cost, including staff time, is calculated, the return on investment is often less than what it appears.
Then there is the allure of social enterprises and earned revenue strategies. Like clockwork every several years the sector’s rhetoric returns to the power of these vehicles to solve organizational sustainability woes. The mantra goes that philanthropy is decreasing and dependent on donor whims. “Begging for money” is too hard for struggling nonprofits with an important mission. Rather, an earned revenue strategy with a product or service that can be sold to those willing and able to pay a price is the pathway toward success.
Most nonprofit revenue strategies are mixes of earned revenue and contributed philanthropic support. Even social enterprises often get their startup money or seed capital from philanthropic funding. Realizing the potential of any revenue stream requires investment in building the capacities and relationships necessary for success. This is as true in earned revenue as it is in philanthropic support. While the desire to offer a tangible product or service that is valued by those who afford to pay is understandable, the Small Business Association reports that 50% of small businesses fail in their first five years and are subject to the same economic cycles that impact philanthropic support.
The desire to move away from philanthropy is understandable. Overall giving fell in 2018 according to Giving USA and there are storm clouds on the horizon for future philanthropy including the lingering effects of the new tax law, the falling percentage of donating households, growth of Donor Advised Funds and the effects of income inequality in philanthropy as evidenced by a larger percentage of gifts from higher income households. Looking at the headlines, the evidence says the path to greater sustainability lies in either a major gifts campaign or an earned revenue strategy. But, overlooking philanthropy in a comprehensive and inclusive manner with smaller as well as larger gifts, is a mistake.
Relational Benefits of Philanthropic Support
The headlines and statistics miss the true power of collective solutions that philanthropic support brings. A broad base of individuals who share the organization’s values, understand the community’s needs and outcomes the organization seeks, and demonstrate some level of passion for the mission has benefits beyond the financial resources the organization receives. Presidential campaigns provide a model as several, while still relying heavily on large donors, showcase their broad-based approach by highlighting the number of donors who’ve contributed and the average size of their gifts. Campaigns use these grassroots tactics to generate excitement and buzz, creating greater awareness of their positions.
Nonprofit organizations, which have the added benefits of directly impacting their local community and providing tax deductions can use this same tactic. Beyond the financial benefit, a broad base helps nonprofits programmatically with advocacy efforts. Efforts to influence public policy related to an organization’s mission have gained traction over the last decade, but still only about half of nonprofit organizations actively engage their board in these efforts (Leading with Intent 2017). Donors could and should be equally involved as organizations gain clout with the larger number of people they represent. These efforts also have the added of benefit of aligning with a philanthropic revenue strategy as people who sign petitions, call their legislators or engage in other advocacy efforts are more likely to give. This is the type of support and impact you can’t achieve with just an earned revenue strategy.
What Philanthropic Support Takes: Investing in Authentic Relationships
To realize success with individual giving and build a broad base of donors, nonprofit organizations need to adjust their strategies and be more intentional about how they implement this strategy. Part of this change is driven by the changing consumer. Donors are more discerning and are used to individually customized transactions (which will only grow with the advance of artificial intelligence in our digital retail environment: Amazon knows what else people might want to buy, and Facebook thinks it knows who else they should be friends with). Without knowing better, donors will expect the same from nonprofit organizations.
Good development departments have always tried to understand better what donors are interested in both within and beyond their organizations. On the whole, though, donations are becoming more transactional. The national retention rate of first year donors is an abysmal 31%, indicative of drive-by donations in a transactional relationship. To overcome these numbers, organizations must build a direct relationship where the organization listens as much, if not more, than it talks about its successes. Donors provide clues of their interest by opening emails, responding to solicitations or attending events. Unfortunately, in the quest for the next gift and the pressures on time, nonprofit staff tend to overlook the signals. Building relationships and then segmenting donors into interest areas requires an investment of time but can be incredibly powerful and rewarding. This allows the organization to meet donors where they are and bring them along on the journey.
Building relationships can be done through a variety of means: email, special events, receptions, direct mail, twitter, Facebook, one-on-one, or, even better, all of the above. An integrated development plan as part of the revenue strategy shouldn’t view the special event as a one-off transactional affair designed to bring in a large sum of money but rather an engagement opportunity to expose the organization’s mission and inform people of its impact in a fun environment.
These relationships also have a byproduct: sustainability. When donors feel appreciated and engaged in the process leading to impact, they will feel like a valued part of building stronger communities. As a result, they repeat their gifts, delivering the repeatable revenue that organizations are looking for.
All of this, however, requires time, investment and focus to bring people together, let them in and establish a relationship. It requires shifting from a transactional frame of mind to one focused on the longer-term relationship with an understanding that we’re all in this together. CompassPoint’s Bright Spots of Fundraising report offers prime examples of the power of this support when done correctly.
While we focused on individuals here, the same approach can be used to secure contributions from foundations and corporations who might have slightly different priorities, but who we view as individuals with larger giving vehicles.
And, of course, if there is an opportunity, earned revenue and social enterprises should be considered as part of the mix of an organization’s revenue strategy. We recognize the important role this revenue source can play if the market dynamics are favorable and the organization invests in the capacities necessary to succeed. We urge organizations to remember, however, that market solutions provided by these streams often don’t engage individuals in the community or build the same spirit that philanthropy can. Sustainability is strengthened when there is alignment between impact and revenue or when investors provide resources because they care about the mission of the organization. Philanthropy provides this reinforcing alignment more easily because it is driven by values, ideas and organizational outcomes.
As organizations work toward becoming more inclusive of all voices in our communities, they need structures and strategies – programmatic, revenue and organizational – that reflect these voices. Our social fabric is built on relationships and conversations. Especially today when the headlines show our divisions, nonprofit organizations can lead the way in fostering connection. Relationships lead to better understanding, better solutions, impact and financial donations – leading to stronger organizations and ultimately the stronger communities we all crave.