How Funding Flows to Social Impact Efforts
I was surprised by the answer at first and then... it all made sense.
Many leaders I speak to think only about foundation funding as a means to fuel their mission. But according to research from 2018, the vast majority of funding came from “users and customers” at $1.6T followed by “individuals” at $292B and then “government grants” at $174B. Foundations represented a lower amount at $76B contribution by comparison. Why?
To be fair, the data could be skewed by several large nonprofit hospital systems counted in the data . These hospital systems ‘make money’ to finance their operations through public and private insurance. In addition, $76B in funding is a ton of money and foundations do exceptional work to fill gaps left by other entities. However, from my own direct experience I wish I and others who came before me had been thinking about what it would mean to diversify funding beyond institutional philanthropy earlier. This is in addition to not as a replacement of foundation funding.
Source: https://candid.org/explore-issues/us-social-sector/money
Individual Funding
To this day, I work with high net-worth individual donors to re-grant support to social impact efforts in the U.S., and elsewhere around the globe. I find individual donor relations to be one of the most personally rewarding and fun ways to raise money for a cause because of how relationally focused it is. I have developed lasting friendships with several individual donors. In addition to large donors, small dollar donor fundraising can also be a means to diversify revenue streams. Establishing an individual donor program whether large or small is one way to diversify funding that can and should be explored. The problem is that the cost of acquiring an individual donor often outweighs the benefits (amount of money raised). In addition, churn (the inability to retain donor interest) can also be a major blocker to pursuing and individual donor fundraising strategy.
Government Funding
I do not have direct experience with government funding (if you are reading this and you do please reach out). However, several major funding programs from the Federal and state-level governments in the U.S. have been announced in just the past two years. The sheer size of the government funding pie alone warrants a lot of investigation. As money is doled out by the government for nonprofit and mission-driven efforts such as digital connectivity many organization’s do not have the capacity or the technical know-how to apply. There are also trade-offs as government funding can come with strings attached that we are not always willing to accept. There is also a political risk in some contexts of being perceived as too closely tied to government.
Users and Customers
Contrary to popular belief nonprofits do often offer services and products in exchange for money. The money is used to fuel the organizational mission as opposed to simply generating a profit. But these earned revenue streams are one of the ways to diversify funding beyond foundations. The problem is that sometimes the people who need the products and services the most are the least able to afford them. Lowering prices in order to allow a wider pool of people to afford it means that organizations can easily operate at a loss if they cannot keep costs low. This is why in so many cases the government or donors often serve as the ‘payers’ of the product or service even if they are not the end beneficiary.
Although in this post I wanted to explore a few of the less common flows of funding to social impact efforts I still think foundation funding is vital. In fact, sometimes the diversification effort that is needed is to pursue more foundation funding. However, as the chart above demonstrates there are plenty of other channels to pursue as well.
If you would like to learn more about how funding flows to social impact efforts and how to diversify your own fundraising please be sure to subscribe below to stay in touch. There is no one size fits all.