The Sustainable Funding Model For Non-Profits

24 Mar 2022
The Sustainable Funding Model For Non-Profits

A Non-Profit leader is like the captain of a ship. She gives direction and steers the organization's activities towards the right path. But when unexpected storms come, like the COVID-19 pandemic, the ship begins to rock.

As a member of the Non-Profit leadership team, one of the most critical tasks is to ensure that funding streams are healthy — no mean feat! Most of the Non-Profits are struggling to raise the necessary funds for their various programs. And according to a 2018 report by Oliver Wyman, SeaChange Capital Partners, and GuideStar, nearly 50% of US Non-Profit organizations are operating on less than one month of cash reserves. It is therefore extremely important to evaluate your current funding model and prepare to develop a sustainable funding model.

As a Non-Profit leader, you have to think ahead. You must evaluate your current funding model and develop a sustainable funding model. This will give you more power to direct your Non-Profit’s actions towards long-term success. So, what is sustainable funding? A sustainable funding model for a Non-Profit is built upon a plan that ensures perpetual streams of funds/financial support to accomplish and scale its mission impact.

A study by Paulina Alvarado Goldman from Capacity Building and Policy Experts, LLC and Rider University, revealed the following characteristics for a solid Non-Profit funding model: Diversified funding, multiple-year contracts, flexible funding that adapts to changing circumstances, and unrestricted funds that allow organizations to adequately cover all costs. To accomplish this state of operation requires resilience.

Every Non-Profit has its own set of unique challenges. How should you build sustainable funding? And which one is the best fit for you? Let us address how you can beat the funding fuzziness. When Non-Profit funding sources are not properly aligned to its overall mission and purpose of existence, you will keep dodging the pitfalls of lack of funds.

Let us understand by identifying the different funding channels. These include:

  • Individual donations;
  • Large sum of funds donated by a single person or foundation or few select individuals;
  • Government funding / Federal grants;
  • Corporate grants;
  • A mix of funders (combination of some or all of the above)

Which model is the best fit for you? To answer this question, you must critically analyze the cause you are working towards. Here you need to think from the perspective of what’s in it for your stakeholders. What matters to them? Why should they give? To work up a sustainable model, you need to go back to your mission statement to understand the purpose of your existence. The next step is to identify what will make your target audience keep coming back to you.

The Stanford Social Innovation Review explains in great detail with examples the ten funding models for Non-Profits. The idea is to brainstorm the channels for unrestricted funds to meet your operational costs or supplement the primary goals of your mission on an ongoing basis.

Steps to develop a sustainable funding model
Step 1: Analyze current funding channels

The first step is to analyze which are the channels from which your organization is receiving funds. Have the finance team share a detailed account of transactions involving incoming funds and from which channels. You may also want to know the budget allocated to each of these channels to achieve the program goals. This will give a clear picture of the return on investment. Once done, you will need to see how the current funding model is aligned with your overall mission impact.

Step 2: Evaluate own funding channels with that of competition

Look at your peers. Identify other Non-Profit organizations in your region or outside, in case you are addressing a very niche audience. See how they are achieving the United Nation’s Sustainable Development Goals (SDGs) or issues relating to Environment, Social, Governance (ESG) as you. A detailed study of how your peers conduct fundraising activities will give you some basis to work on your own funding model. To identify opportunities for unrestricted flow of funds, ask yourself:

  • Are there more ways to get funding?
  • Are there channels that are not worth pursuing anymore?
  • What are my peers doing right?
  • Where can I find more opportunities to fund my Non-Profit organization?
  • Can a part of my organization’s activities such as donating food or clothing or medicine be met another way?
  • Which channel can provide a sense of continuity of funds?
Steps 3: Create/document the funding model that could be sustainable for your organization

After getting answers to questions in step 2, it is time to select the best-fit sustainable funding model for you. It is possible that for some Non-Profit organizations a diverse income stream may be a good fit, while for others it could be only 1-3 channels. Get creative and collect ideas from your employees as well as your community including customers, donors, peers and social media followers.

Step 4: Adapt and focus on channels that can bring a constant flow of funds

The downside of constantly striving for funds, especially during unforeseen events, leads to what is dubbed as the Non-Profit starvation cycle. Developing a sustainable funding model is hard work. But it is well worth the investment. Knowing where your organization is on its sustainability journey, enables you to work smartly by tapping into missed opportunities. It will help you to identify creative ways to adapt to the changing donor landscape. Maintain financial sustainability for your Non-Profit / charitable organization, will give you a greater sense of control to make day to day decisions. You may even consider setting up a committee that is responsible for the execution of your sustainable funding model.

Sustainable funding starts with data and technology. Having a central repository for your data will allow you to pull in the right metrics and make informed decisions for planning ahead. GiveLife365 leverages Microsoft’s Power BI, a user-friendly interface enabling your Non-Profit organization to transform your data into rich visual representations.

Leverage technology to empower you to build relationships with donors. These could be individual donors, corporations, foundations or government funders. The funding model you select must address the needs of your stakeholders so you can sustain your activities and also aim to scale with time.