Synopsis: Philanthropist and investor Mona Sinha overviews why understanding your nonprofit funding model is important to understand target fundraising and ensure your organization's success.May 7, 2018 —
I moved to work in the not for profit sector after spending several years in the corporate world. The most significant shift I saw was the focus on money. It is the constant topic of discussion in the world of non-profits, be it mid-size enterprises focused on ending gender violence (with a budget of less than $1 million) or large colleges with big endowments. There is just never enough money to change all the lives that these institutions seek to change. Gender violence is growing rapidly; educational institutions are fulfilling their mission to serve bright students who cannot afford increasing tuition costs and the funds for all of these organizations are getting more difficult to find.
So where does a funding model fit in?
“As fundraisers research their space, it is important to understand organizational priorities and channels that are specifically funded. This will help develop programs that can be easily understood by funders and outcomes that can be measured.”
In a for-profit company the business model is simple. The company sells a good or service and there is a buyer who pays to avail of such. It is a transaction that involves money and that accumulation allows for the management to be paid and the company to sustain itself assuming that the products have consistent demand. Management is held accountable for products to be delivered to their beneficiaries who pay for them. The cycle of revenue and cost is established, and the profit is either distributed to investors or reinvested for future growth. With excess funds the company is able to innovate and attract new customers and there-in starts a new cycle.
In a socially conscious non-profit organization, the beneficiaries of goods or services typically do not pay for them. The cost of constructing these benefits is borne by an investor who usually does not get a return or even paid back their capital. Philanthropic grant money is used by beneficiaries who cannot pay for the services they receive. It is often a one-time transaction and fundraisers have to get creative as to how the cycle can be repeated each year or every couple of years.
It is important to understand funding models because fundraisers can then identify an individual or a group (or combination) to target for funding. Mission focused fundraising is critical as always.
Stanford Social Innovation Review has an interesting breakdown of funding models and I will dive into two types:
The Community as Funder:
We often see organizations supported by the community that it affects. For example, breast cancer treatment/cure is funded largely by supporters who have had some personal experience or loss, either themselves or someone close to them. I am thinking of the Susan G. Komen fund which collects money for breast cancer from around the globe and distributes it to fund treatment and eventually a cure. The goal has not been reached yet but the organization is strongly supported by this group of funders. This allows them to hone their messaging and target their audience strategically by focusing on the prize - which in this case is the cure for breast cancer.
The Public Cause Funders:
These funders support causes that allow for a public good to be established. For example, refugee resettlement, housing for veterans or homeless people. Large organizations, foundations and individuals who seek to set a minimum standard of living and bringing dignity to human lives commit to funding organizations that match their mission.
There is some intersectionality in all these issues whether it be a gender lens, focus on social inequity, generational poverty and many more. As fundraisers research their space, it is important to understand organizational priorities and channels that are specifically funded. This will help develop programs that can be easily understood by funders and outcomes that can be measured.
The hope of all these models is to eventually move from a local grassroots stage to a national network. Having a funding plan makes this a long-term possibility. Without one, an organization is scrambling to fund its annual budget with no focus on long term sustainability. Hence funding models are important to understand and customize based on individual mission and purpose.
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