Thank you for this. I am also convinced that nonprofits need to continuos adaptation to the changing conditions that other organizations face and your ten flavours above will be useful in sparking discussion among leaders who are searching for better ideas and those who are actively prototyping unique approaches. I look forward to seeing where the comments and responses go.
An excellent article. Taproot Foundation’s pro bono consultants will find it a valuable lens through which to think about how best to support the marketing & fundraising capacity of the nonprofits we serve. Thanks.
Brilliant article. I was asked just the other day about funding models for nonprofits and was able to pass on your concisely written, well thought out article listing 10 clearly defined models. Your article could not have come at a better time- the global economic crisis has made fundraising quite a difficult task these days. Those organisations without a clear plan are in trouble. I will certainly be following what you have got to say from now on. Thanks!
I agree with the other comments here, very useful language, simplifies strategic planning discussions for non-profits. I did have one question. Fast followers and low cost providers et. al. adopt a given model based on an assessment of their capabilities vs. other players in the market.
What questions about an organizations “capability” should be considered-highlighted when crafting an approach or assessing the fit within a particular funding model?
In creating a brand-new-from-scratch fundraising program for an international organization, I spent a fair amount of time looking at internal capabilities before crafting a strategy regarding the external market. Areas of investigation included 1) human resources—did I have anyone other than myself to begin the program? What human resources/skills would I be likely to be able to draw upon in the future? 2) Information Technology resources—could the organization’s ICT infrastructure support a program that was high in data requirements? 3) Finance resources—could the organization’s finance infrastructure support complex financial transactions? 4) Legal resources—could the organization’s legal infrastructure support multi-country, multi-pronged approaches? 5) Communications resources—how flexible was the organization in massaging its message to meet the needs of different audiences.
Those had to balanced against the organization’s capacity to absorb new funding, and its appetite for the same.
Having had huge success quickly using the Beneficiary model (satisfying the organization’s appetite for quick results within significant constraints of all of the above), I’m now undertaking the same analysis to see if we should change this model.
I don’t know if that is helpful at all.
This article is very useful in clarifying external models and will, as Michelle Stolz notes, be using for communications on the possibilities.
One question that I asked myself in this framework is the place where for-profit/not-for profit partnerships fit in. I think they may fit into several of the frameworks but aren’t explicitly mentioned. I’ve been working a fair amount in this arena, and find it extremely rewarding (but complex). Any thoughts?
I think this statement is right on target “When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good. Too often, the result is that promising programs are cut, curtailed, or never launched.”
The 10 types of donors you identify in this article all have one key thing in common: When budgets are being cut, it becomes increasingly important to them that their money is going to not only a worthy cause, but an organization who produces measurable and meaningful results in the community.
Nonprofits who fail to report on their outcomes and hold themselves accountable for their funding, will inevitably find themselves left high and dry.
There is another donation method overlooked. The donation of excess inventory that would be auctioned off which would create cash to the non-profit. The auction platform is established and successful with thousands of buyers/bidders. Virtually anything can be auctioned and values can be very high - in the millions.
Further information available.
gene
Thanks for the note I learn a great deal from comments of folks responding to content on sites like SSIR.
My question about capabilities (as you guessed) is motivated by work on public-private partnerships, and,
more recently, hybrid organization structure.
My question-suggestion was about extending the NP Model thinking to help in understanding gaps and
strengths in capability.
My thinking is that a set of capability-based questions can guide internal development efforts, and help in
identifying partners, funding organizations, and collaborators with resources that address capability gaps.
To your point about complexity of profit\not-for profit hybrids: This simple question based gap analysis,
would perhaps simplify the complexity of creating-managing public-private partnerships, defining boundaries
along capability lines before any partnership or collaboration is agreed to.
If these capability questions existed, an organization would first identify a funding model, then use the capability
questions to narrow the list of funding (or partnership) prospects based on capability gap - matches. The end
result would be an integration of funding and internal development strategy around each given model
I know that’s a mouthful, but that’s my thinking in response to yours. Thanks for the question.
It is a valuable article, however, like some of the other great articles published in SSIR over the past few years, the research is focused on mega-nonprofits. For this reason, it may not be directly applicable to start-ups or other small, community-based nonprofits, which make up the majority of social sector organizations. Other research indicates that funding diversity is more critical to these smaller organizations, and that they don’t tend to rely on a single dominant source of funds or funding model until they reach the point of having multi-million dollar budgets.
I appreciate this work, and also hope to see more research on smaller organizations in future SSIR issues. There’s a lot to be said for local, community-based organizations that are integrated with and supported by a local constituency—they may prove more sustainable over the long run even if their funding model is a bit less easy to peg.
I appreciate the insight on what kind of model my non-profit is, but am looking for the corresponding article to tell me what to do with this information. Are certain kinds of fund-raisers/approaches/ events better for each of these model? Please elaborate.
Early in the article, the fee-for-service funding model was discounted because the author could not find an example of a large nonprofit operating off of a “strictly fee-for-service” model. Then, paragraphs later, the author says, in speaking about hospitals and universities, “Generally, the vast majority of these nonprofits’ funding comes from fees that beneficiaries pay for the services the nonprofits provide.”
According to the 2007 nonprofit almanac, fee-for-service is the single largest source of all nonprofit revenue (70%). [Private contributions are second at 12% of all nonprofit revenue; government is third at 9%.] Many of the country’s largest nonprofits such as major hospitals, universities, museums and theaters earn a high majority of their revenue through fee-for-service and I am perplexed as to why the model was not included in the mix.
Your article was very interesting. Many Executive Service Corps around the country work with very large organizations such as those included in your study, our typical clients are not so large. We see a mix of funding models within any one organization, e.g. fee for service, some government grants, and heartfelt connectors. Would smaller organizations (those with considerably less than $50 million/year) benefit if they promoted/focused on one type of funding model or do smaller organizations need to have a mix in order to survive?
I think there is need for an 11th, “value” model, where contributions come in exchange for something of real value to the donor. I think we have the technological tools now (online micro-payments systems, mobile computing with GIS and GPS, etc. to have non-profit causes be more of a presence in the everyday lives of people. Video clips of the fresh water well project we feel so strongly about can now be a 3 minute video clip that someone contributes money to watch while commuting to work.
I think there is much more latitude in many non-profit mandates and in the tax code than most of us have dared to imagine. Our distrust of formal business models and to some degree technology, costs our missions resources and mind share. Fortunately I think this is changing, albeit gradually.
Agree. This is a fantastic article. The authors demonstrate that it is indeed possible to provide structure and clarity - even for the most complex business models. It is essential that management, donors, and funders continue to seek models and measurement systems that help to demonstrate that our efforts and resources in the non-profit arena are well directed and have the impact we all hope to achieve.
Thank you for this work.
Catherine Carter
Palo Alto, CA
I have a question. Are there examples of a non-profit organization developing and being funded by its own for-profit organization? For instance, a university being the sole owner of a biotech startup where all the profits go back to the university? Would this represent another funding model?
Glen White,
You stated, “I think there is need for an 11th, “value” model, where contributions come in exchange for something of real value to the donor. I think we have the technological tools now (online micro-payments systems, mobile computing with GIS and GPS, etc. to have non-profit causes be more of a presence in the everyday lives of people. Video clips of the fresh water well project we feel so strongly about can now be a 3 minute video clip that someone contributes money to watch while commuting to work.
I think there is much more latitude in many non-profit mandates and in the tax code than most of us have dared to imagine. Our distrust of formal business models and to some degree technology, costs our missions resources and mind share. Fortunately I think this is changing, albeit gradually. “
I completely agree. I think that there is a need for an 11th value model. Non profits need tax resolution and more tax breaks in order to continue to use new technological tools. If the government continues give incentives to non profits for increasing their technological resources, I think that they will continue to take advantage.
After reading this article, I realized how important it is for the NP community to have available its own “town square”, so to speak—- a tangible place to connect with others, share ideas, and promote their individual efforts by capitalizing on the success stories of other organizations. In our current age of (and need for) transparency, I am willing to bet on and currently seeking this exact approach. Any comments?
I will be returning to reread the information given. Need some big bettors to invest with us. We work to end poverty. Ideas must change. When Christ was asked how much do we give to the poor? He told the student “Give the full need.” We at Hospitality House think this is the answer. Something never tried.
We also believe it when the US Labor dept. exclaims a mere 30% are at a livable wage. Only that means
70% earn less the the avoidable amount of their bills. In my book that is poverty level where you pay all your monthly and yearly bills, insurance, rent, heathy food, beauty and household supplies, tranportation. repairs, telephone, electric, and recreation as cable T.V.
Alexandria—I am not convinced that non profit organizations actually share information. In my experience in Texas, the institutions that claim to assist non profits actually steal ideas that they use to uplift their favorite non profit. I hope someday to find a true nonprofit resource center instead of one that is in name only.
Love to see this type of research done for NP in the international development field as many focus on bilateral. mulitlateral and UN funding - though often have a sizable government portfolio and CSR links.
I recently did a report on funding models of a national Zoo, I am not sure if they use the “HEARTFELT CONNECTOR” or “MEMBER MOTIVATOR” model or a combination of the two. I feel with the growth of crowdfunding networks being provided these two models “HC” and “MM” can really grow and show the impact of the individual donor. Currently with the economic crisis, more and more foundations are decreasing their grantmaking but individual donations are at an all time rise. I feel with the millennial generation and the generation Z, more and more individuals care about the gaps in society and social impact. Thanks to technology we can microfinance and crowd fund awesome nonprofits who are making a real impact in our society.
I wanted to say a sincere and heartfelt thank you, for the provision of information on funding models.
It comes at a time when a local educational/ arts charity here in Sheffield, UK, called Access Space, that has been established fifteen years is dramatically feeling the ‘funding-squeeze’ and prescriptive conditionalities of grant awarders.
To survive it must take stock and transform, whilst keeping faith with its essential ideal. There is an urgency to this work, as there is only four weeks of funding remaining and much to think and act on.
Your information has helped me to present an argument to the trustees to step back from hastiness and a solutions-based footing that may unravel as unsustainable in the mid- and long-term. I am proposing to an approach that appreciates the primacy problem-definition, self-profiling and broad imagination to the days ahead; basically, thinking to purpose, before leaping.
It is valuable that excellent work like this is available in a well-structured, concise manner which can help stimulate the thinking of organisations, large and small - especially small!
Interesting article. I was wondering where a sustainable business definition as with Muhammad Yunus could fit in here. I know this article talks about non-profit models, still it matters if revenue streams get fully re-invested for a particular social or environmental purpose. Such socially motivated ventures, according to Yunus, would use power of economics to achieve their targets, which I find more appealing than relying on charities and donations. This model also differs from for-profit companies that only achieve profit-maximization. I visualised this in a small chart titled “Social Business in the Light of Income Generation”. http://www.marcelmuench.de/2013/01/perspectives-on-social-and-sustainable-business/
Very surprising that this article doesn’t mention social impact bonds (SIBs). Maybe this is too new for a 2009 article. Would be interested in discussing SIBs with anyone else looking into them.
Regards,
Dan
A lot of these seem like variations on crowd-funding. I guess the difference is that you want the product/services for the customer paid for by someone else. In that way, the non-profit is a kind of broker. But often you’ll only get this funding from a crowd. It seems difficult to have a few big-ticket benefactors.
I stumbled across this article and it was a great read. Some of the other participants have mentioned tax issues. Especially in tough economic times, I think there’s a certain obligation of our government to ease the restrictions on forming and maintaining 501(c) organizations. Speaking from the perspective of a practicing tax attorney in San Diego, I see alot of non-profits stifled by compliance and regulatory issues. I’ve written about this in my blog, http://www.sambrotman.com, and have previously discussed alot of issues related to non-profits. Truthfully, funding would be much easier if non-profits had less to worry about and could devote more time to building and maintaining their own operations. What responsibility does our government have to ease the tax restrictions in order to make non-profits and the private enterprises that help fund them more effective? Just a thought.
These are great but painfully miss an entire part of the nonprofit sector: arts organizations, dance companies, public radio stations and membership associations. Clearly, nonprofits are defined by the parameters of our own familiarity. These skew towards social service organizations. Still, a good description of this part of the sector.
An excellent and much needed article. I agree with Sam on the need to ease restrictions on the forming and maintaining of the 501(c) as we have just went through the process of getting ours. The “red tape” involved can at times discourage you and distract you from your primary goal or mission. Once again, a very good and informative read.
I would like to start up a small non-profit. I just feel overwhelmed with the thought of taking it on. I really don’t know if it would be worth it. After reading most of the comments, I’m not taking away from most of the comments that its really worth the effort!
This is an excellent article for those seeking to start a social enterprise - There are so many different funding models out there and having them laid out makes the nonprofit sector seem much for attainable for social entrepreneurs.
“the Big Bettor. Often, the primary donor is also a founder, who wants to tackle an issue that is deeply personal to him or her.” ..... This is me.
I’m planning to stand up a new non profit to foster ocean stewardship through education, education through exposure and foster a love of the sea. The organization, Sail Our Seas, will provide small groups ‘fee for service’ educational offshore marine science exploration excursions on a well equipped sailing vessel.
I want to donate a fairly large sum of cash, purchase and donate a sailboat in order to jump start the operation and as ‘proof of concept’ for future donors.
If I donate to ‘my own’ non profit, can I claim the donation on my personal income tax return up to the limits set by the IRS? Can all the other board members also claim their initial and on going donations?
I couldn’t agree more with your statement that “When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good. Too often, the result is that promising programs are cut, curtailed, or never launched.”
The 10 types of donors you identify in this article all have one key thing in common: When budgets are being cut, it becomes increasingly important to them that their money is going to not only a worthy cause, but an organization who produces measurable and meaningful results in the community.
This is only my observation and maybe this happens only in my own experience.
When funds are given to an organization, a government or an institution, a greater portion of the amount is spent on meetings. These are the elite planners of which most does not settle in cheap meeting places with all the elegances in accommodations, travel and costly allowances.
Stakeholders ‘consultative’ meetings seems like gathering for compliance only, as maybe demanded by donor organizations. The processes takes too long and a whole year will just pass by.
Funds attracts cooperations but it should not be limited only to planning wherein most of the “bulk” is spent and only a fraction goes to the intentions.
As funders, maybe we have not tried giving the whole ‘bulk’ directly to the stakeholder. We know exactly that this group are not prepared to manage the sum but this would lead us in finding thought leaders to move.
Wow, you folks really missed a mark with this. I agree with Laura, your article focused only on very large organizations and COMPLETELY overlooked the vast majority of nonprofits that exist in America-those with budgets below $5M. Having just spent the last 10 years as a capacity building consultant for smaller nonprofits, I can tell you that very few (if any) would fit under one of these models. If they didn’t I’d advise them right away to stop relying so heavily on a single source of revenue and diversify. Many nonprofits provide a social service to the community and rely on a mix of foundation and local government grants, small government contracts, in-kind donations, contributions from individuals and corporations and, when appropriate, earned income/fee-for-service. Often donations from individuals and business are motivated purely from altruism and a desire to improve the lives of those in their community-not because they have ever directly benefited from the service. And the greater the diversity among the mix of revenue sources, the healthier the nonprofit. Your article FULLY neglects this “healthy mix” model. SSIR, you are great at thinking, but please, please expand your minds past the ivory tower of mega-nonprofits and put them on the ground, where most nonprofits operate. They have value and could use your thinking also.
I agree Caroline. We’ve manage to organize our city dumpsite scavengers community into a duly certified association as requite for funding from local government agencies. That was in 2009. Until today, we still find it difficult to persuade funding institution for support even after we complied the requirement.
There are numerous various other business that might tell a comparable story. Earlier this year, a research study by the Commercial Journal exposed that the 454 firms that had gone public under the regulations of the JOBS Act produced roughly 82,000 brand-new works. The variety of employees for these companies was up roughly 30 percent from their pre-IPO headcount. Comparative, from the time of implementation of the JOBS Act to the moment the research study was carried out, overall private-sector work of 15 year old was up just 6.6 percent. To be reasonable, some of these companies would have gone public and would certainly have produced new tasks—also without the JOBS Act. The expedited IPO stipulations made it simpler for these business to raise funding with a successful public offering.
While it is long previous time for the SEC to settle the crowdfunding rules, there will certainly still be a lot more function to do. For example, studies indicate the current surge in banking rules as contributing to the failure of brand-new financial institution start-ups. Less new financial institutions mean a lot less accessibility to competitive resources for households and businesses.
Our patent regulations, tax obligation code, and also business-formation regulations all require reform. The bad news is that much remains to be done. Fortunately is that the JOBS Act is proof that we can actually make progress in developing the sort of setting that is essential to sustain the startups and entrepreneurs we are all depending on to grow our economic situation.
When funds are given to an organization, a government or an institution, a greater portion of the amount is spent on meetings. These are the elite planners of which most does not settle in cheap meeting places with all the elegances in accommodations, travel and costly allowances.
I don’t know if this would work Desert BK. Were obsessed with the theory of collective impact. And, started forming a local backbone group. One way to raise funds is by joining calls for project proposals. Should entry be chosen, the prize money will go directly to target beneficiaries (Scavengers Community). They will be the one to manage the funds and become our “employers.”
Hope this will work and give transparency a chance. Thank you.
Really a nice article covering all the important facts. I would recommend everyone to go through this once. Though if the length would have been little less it would have been awesome.
I think non profit funding models can be various, for example I know a website who give back a % of his incomes to some welfare organisation. So the consumer can get an advantage when he does his shopping online plus its helpful for lot of World Organisation such as WWF and stuff.
Great article for tax resolution services as mentioned above great solution for people.
I am also welknown of another firm with tax remidiation services. They are very helpful to people.
If anybody have issue with their tax matters, do concern with them at Tax resolution service in California
While funding is the lifeblood of any nonprofit out there, a slight distinction between funding and unrelated business income needs to be made. Any funding that a nonprofit receives via individual donation, corporate donation, or grant can’t be taxed as it was donated to advance the mission of the nonprofit. With that said, any nonprofit can have unrelated business income that is taxable. For example, if a nonprofit created an app that does not directly advance the mission of a nonprofit and if that nonprofit charges users to use the app, that nonprofit can be taxed for unrelated business income. There are a number of exceptions to this rule, but I thought unrelated business income deserved a brief mention. If you’d like to learn more about unrelated business income, feel free to check out the following article that I came across: https://irssolution.com/blog/whats-required-of-non-profit-tax-reporting/
There is another growing NPO Model whereby the non-profit runs for profit businesses, with the profits rolled back into the NPO to fund services. There is a lady in San Francisco who runs a prisoner re-entry NPO, with a large restaurant on campus, which provides about 20% of total NPO operating costs.
Agree with Mario - I’d love to see an update to this article. In particular, I wonder whether the authors have changed their opinions about NPOs owning or operating for-profit ventures as a source of funding, as per Craig’s comment.
Excellent article. I wish we could research models with a more world or Africa twist. The models here are so well summarized and explained, i believe a similar exercise with NGOs and NPOs and donors working in the global south/developing world would be extremely helpful for people doing the work that I do…trying to get African non profits to think strategically about resource mobilization and fund raising.
Would love to see Ten Funding Models 2.0! Lean Impact’s Growth chapter offers additional models. And the article What’s Your End Game is a good complement to the concepts here.
This is a great article, thank you. An evaluator who is charged with the responsibility of supporting a Non-Profit’s business development efforts should seek to know the type and nature of funding type and requirements-if any. For example, the "Public Provider" has specific requirements that may impact the way an intervention is designed, how it will be monitored and evaluated. With the "Heartfelt Connector" model, the non-profit should be more creative in their designs and complex monitoring and evaluation systems may be less necessary as long as the funder is comfortable. In addition, more evidence of the suggested interventions and outcome pathways may be needed more for the "Policy Innovator" model than for "Local Nationalizer".
You should also look into Google Ad Grants which are free ads that Google gives to qualifying nonprofits. You can learn more at https://www.grantrepublic.com
COMMENTS
BY Milton Friesen
ON March 5, 2009 03:12 PM
Thank you for this. I am also convinced that nonprofits need to continuos adaptation to the changing conditions that other organizations face and your ten flavours above will be useful in sparking discussion among leaders who are searching for better ideas and those who are actively prototyping unique approaches. I look forward to seeing where the comments and responses go.
BY Cynthia Armour
ON March 6, 2009 08:45 AM
Excellent article ... you’ve helped reframe 20+ years in the voluntary sector business ... great perspective, clear and well laid out ... thanks!
BY Nitin Rao
ON March 6, 2009 06:52 PM
Excellent article and framework.
BY James Shepard
ON March 9, 2009 12:23 PM
An excellent article. Taproot Foundation’s pro bono consultants will find it a valuable lens through which to think about how best to support the marketing & fundraising capacity of the nonprofits we serve. Thanks.
BY Michelle Stolz
ON March 10, 2009 02:18 AM
Brilliant article. I was asked just the other day about funding models for nonprofits and was able to pass on your concisely written, well thought out article listing 10 clearly defined models. Your article could not have come at a better time- the global economic crisis has made fundraising quite a difficult task these days. Those organisations without a clear plan are in trouble. I will certainly be following what you have got to say from now on. Thanks!
BY Rhesa Jenkins
ON March 10, 2009 03:29 PM
I agree with the other comments here, very useful language, simplifies strategic planning discussions for non-profits. I did have one question. Fast followers and low cost providers et. al. adopt a given model based on an assessment of their capabilities vs. other players in the market.
What questions about an organizations “capability” should be considered-highlighted when crafting an approach or assessing the fit within a particular funding model?
BY Andrea Lucard
ON March 11, 2009 06:15 AM
A few thoughts to Rhesa Jenkins:
In creating a brand-new-from-scratch fundraising program for an international organization, I spent a fair amount of time looking at internal capabilities before crafting a strategy regarding the external market. Areas of investigation included 1) human resources—did I have anyone other than myself to begin the program? What human resources/skills would I be likely to be able to draw upon in the future? 2) Information Technology resources—could the organization’s ICT infrastructure support a program that was high in data requirements? 3) Finance resources—could the organization’s finance infrastructure support complex financial transactions? 4) Legal resources—could the organization’s legal infrastructure support multi-country, multi-pronged approaches? 5) Communications resources—how flexible was the organization in massaging its message to meet the needs of different audiences.
Those had to balanced against the organization’s capacity to absorb new funding, and its appetite for the same.
Having had huge success quickly using the Beneficiary model (satisfying the organization’s appetite for quick results within significant constraints of all of the above), I’m now undertaking the same analysis to see if we should change this model.
I don’t know if that is helpful at all.
This article is very useful in clarifying external models and will, as Michelle Stolz notes, be using for communications on the possibilities.
One question that I asked myself in this framework is the place where for-profit/not-for profit partnerships fit in. I think they may fit into several of the frameworks but aren’t explicitly mentioned. I’ve been working a fair amount in this arena, and find it extremely rewarding (but complex). Any thoughts?
BY Heather Curtis
ON March 11, 2009 08:55 AM
I think this statement is right on target “When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good. Too often, the result is that promising programs are cut, curtailed, or never launched.”
The 10 types of donors you identify in this article all have one key thing in common: When budgets are being cut, it becomes increasingly important to them that their money is going to not only a worthy cause, but an organization who produces measurable and meaningful results in the community.
Nonprofits who fail to report on their outcomes and hold themselves accountable for their funding, will inevitably find themselves left high and dry.
BY gene hellar
ON March 11, 2009 01:34 PM
There is another donation method overlooked. The donation of excess inventory that would be auctioned off which would create cash to the non-profit. The auction platform is established and successful with thousands of buyers/bidders. Virtually anything can be auctioned and values can be very high - in the millions.
Further information available.
gene
BY Rhesa Jenkins
ON March 16, 2009 10:16 PM
Thanks for the note I learn a great deal from comments of folks responding to content on sites like SSIR.
My question about capabilities (as you guessed) is motivated by work on public-private partnerships, and,
more recently, hybrid organization structure.
My question-suggestion was about extending the NP Model thinking to help in understanding gaps and
strengths in capability.
My thinking is that a set of capability-based questions can guide internal development efforts, and help in
identifying partners, funding organizations, and collaborators with resources that address capability gaps.
To your point about complexity of profit\not-for profit hybrids: This simple question based gap analysis,
would perhaps simplify the complexity of creating-managing public-private partnerships, defining boundaries
along capability lines before any partnership or collaboration is agreed to.
If these capability questions existed, an organization would first identify a funding model, then use the capability
questions to narrow the list of funding (or partnership) prospects based on capability gap - matches. The end
result would be an integration of funding and internal development strategy around each given model
I know that’s a mouthful, but that’s my thinking in response to yours. Thanks for the question.
BY Archana
ON March 19, 2009 02:21 PM
Super-helpful article, especially as someone trying to launch a new nonprofit
BY Laura Pierce
ON March 20, 2009 11:52 AM
It is a valuable article, however, like some of the other great articles published in SSIR over the past few years, the research is focused on mega-nonprofits. For this reason, it may not be directly applicable to start-ups or other small, community-based nonprofits, which make up the majority of social sector organizations. Other research indicates that funding diversity is more critical to these smaller organizations, and that they don’t tend to rely on a single dominant source of funds or funding model until they reach the point of having multi-million dollar budgets.
I appreciate this work, and also hope to see more research on smaller organizations in future SSIR issues. There’s a lot to be said for local, community-based organizations that are integrated with and supported by a local constituency—they may prove more sustainable over the long run even if their funding model is a bit less easy to peg.
BY Amy Kurland
ON March 20, 2009 03:41 PM
I appreciate the insight on what kind of model my non-profit is, but am looking for the corresponding article to tell me what to do with this information. Are certain kinds of fund-raisers/approaches/ events better for each of these model? Please elaborate.
BY Brittany V.
ON March 25, 2009 02:24 PM
Why was the fee-for service model left out?
Early in the article, the fee-for-service funding model was discounted because the author could not find an example of a large nonprofit operating off of a “strictly fee-for-service” model. Then, paragraphs later, the author says, in speaking about hospitals and universities, “Generally, the vast majority of these nonprofits’ funding comes from fees that beneficiaries pay for the services the nonprofits provide.”
According to the 2007 nonprofit almanac, fee-for-service is the single largest source of all nonprofit revenue (70%). [Private contributions are second at 12% of all nonprofit revenue; government is third at 9%.] Many of the country’s largest nonprofits such as major hospitals, universities, museums and theaters earn a high majority of their revenue through fee-for-service and I am perplexed as to why the model was not included in the mix.
BY jharding
ON March 26, 2009 04:28 PM
Your article was very interesting. Many Executive Service Corps around the country work with very large organizations such as those included in your study, our typical clients are not so large. We see a mix of funding models within any one organization, e.g. fee for service, some government grants, and heartfelt connectors. Would smaller organizations (those with considerably less than $50 million/year) benefit if they promoted/focused on one type of funding model or do smaller organizations need to have a mix in order to survive?
BY Glenn White
ON March 26, 2009 06:06 PM
I think there is need for an 11th, “value” model, where contributions come in exchange for something of real value to the donor. I think we have the technological tools now (online micro-payments systems, mobile computing with GIS and GPS, etc. to have non-profit causes be more of a presence in the everyday lives of people. Video clips of the fresh water well project we feel so strongly about can now be a 3 minute video clip that someone contributes money to watch while commuting to work.
I think there is much more latitude in many non-profit mandates and in the tax code than most of us have dared to imagine. Our distrust of formal business models and to some degree technology, costs our missions resources and mind share. Fortunately I think this is changing, albeit gradually.
BY Catherine Carter
ON March 31, 2009 12:49 PM
Agree. This is a fantastic article. The authors demonstrate that it is indeed possible to provide structure and clarity - even for the most complex business models. It is essential that management, donors, and funders continue to seek models and measurement systems that help to demonstrate that our efforts and resources in the non-profit arena are well directed and have the impact we all hope to achieve.
Thank you for this work.
Catherine Carter
Palo Alto, CA
BY Ron Amodeo
ON April 27, 2009 02:42 PM
I have a question. Are there examples of a non-profit organization developing and being funded by its own for-profit organization? For instance, a university being the sole owner of a biotech startup where all the profits go back to the university? Would this represent another funding model?
BY Fiona
ON February 28, 2011 06:42 PM
Glen White,
You stated, “I think there is need for an 11th, “value” model, where contributions come in exchange for something of real value to the donor. I think we have the technological tools now (online micro-payments systems, mobile computing with GIS and GPS, etc. to have non-profit causes be more of a presence in the everyday lives of people. Video clips of the fresh water well project we feel so strongly about can now be a 3 minute video clip that someone contributes money to watch while commuting to work.
I think there is much more latitude in many non-profit mandates and in the tax code than most of us have dared to imagine. Our distrust of formal business models and to some degree technology, costs our missions resources and mind share. Fortunately I think this is changing, albeit gradually. “
I completely agree. I think that there is a need for an 11th value model. Non profits need tax resolution and more tax breaks in order to continue to use new technological tools. If the government continues give incentives to non profits for increasing their technological resources, I think that they will continue to take advantage.
BY Alexandria Masiak
ON March 8, 2011 05:09 AM
After reading this article, I realized how important it is for the NP community to have available its own “town square”, so to speak—- a tangible place to connect with others, share ideas, and promote their individual efforts by capitalizing on the success stories of other organizations. In our current age of (and need for) transparency, I am willing to bet on and currently seeking this exact approach. Any comments?
BY Jan Lightfoot Hospitality House Inc. (Maine)
ON June 21, 2011 09:08 AM
I will be returning to reread the information given. Need some big bettors to invest with us. We work to end poverty. Ideas must change. When Christ was asked how much do we give to the poor? He told the student “Give the full need.” We at Hospitality House think this is the answer. Something never tried.
We also believe it when the US Labor dept. exclaims a mere 30% are at a livable wage. Only that means
70% earn less the the avoidable amount of their bills. In my book that is poverty level where you pay all your monthly and yearly bills, insurance, rent, heathy food, beauty and household supplies, tranportation. repairs, telephone, electric, and recreation as cable T.V.
BY Rich Ward / The veterans Network
ON September 9, 2011 04:54 PM
The self funded proposal is the best. We have the ultimate funding source for non profits! Give us a call. 1-800-679-7042 Ext. 2560
BY Jackie Tarleton
ON December 19, 2011 10:52 AM
Alexandria—I am not convinced that non profit organizations actually share information. In my experience in Texas, the institutions that claim to assist non profits actually steal ideas that they use to uplift their favorite non profit. I hope someday to find a true nonprofit resource center instead of one that is in name only.
BY Jonathan
ON February 2, 2012 06:11 AM
Standford, I thank you for a critical resource at a most important time in my life. I will be eternally grateful.
BY Darlington
ON February 26, 2012 11:10 AM
Wow! What a great discovery. Great article with practical applications. Thanks everyone for sharing.
BY Munyaradzi Shepherd Chawarura
ON April 20, 2012 01:57 AM
Excellent article, i was looking for non profit organizations funding models and came across this article it has helped a lot.
BY Mary
ON May 19, 2012 01:39 PM
I just wish funders would quit trying to make us all into the “innovation” section!
BY Susan Watkins
ON September 21, 2012 07:51 AM
Love to see this type of research done for NP in the international development field as many focus on bilateral. mulitlateral and UN funding - though often have a sizable government portfolio and CSR links.
BY Luz Montes
ON December 6, 2012 07:06 PM
I recently did a report on funding models of a national Zoo, I am not sure if they use the “HEARTFELT CONNECTOR” or “MEMBER MOTIVATOR” model or a combination of the two. I feel with the growth of crowdfunding networks being provided these two models “HC” and “MM” can really grow and show the impact of the individual donor. Currently with the economic crisis, more and more foundations are decreasing their grantmaking but individual donations are at an all time rise. I feel with the millennial generation and the generation Z, more and more individuals care about the gaps in society and social impact. Thanks to technology we can microfinance and crowd fund awesome nonprofits who are making a real impact in our society.
BY Tahir
ON April 1, 2013 12:33 PM
Dear SSI,
I wanted to say a sincere and heartfelt thank you, for the provision of information on funding models.
It comes at a time when a local educational/ arts charity here in Sheffield, UK, called Access Space, that has been established fifteen years is dramatically feeling the ‘funding-squeeze’ and prescriptive conditionalities of grant awarders.
To survive it must take stock and transform, whilst keeping faith with its essential ideal. There is an urgency to this work, as there is only four weeks of funding remaining and much to think and act on.
Your information has helped me to present an argument to the trustees to step back from hastiness and a solutions-based footing that may unravel as unsustainable in the mid- and long-term. I am proposing to an approach that appreciates the primacy problem-definition, self-profiling and broad imagination to the days ahead; basically, thinking to purpose, before leaping.
It is valuable that excellent work like this is available in a well-structured, concise manner which can help stimulate the thinking of organisations, large and small - especially small!
BY Marcel
ON April 6, 2013 05:47 AM
Interesting article. I was wondering where a sustainable business definition as with Muhammad Yunus could fit in here. I know this article talks about non-profit models, still it matters if revenue streams get fully re-invested for a particular social or environmental purpose. Such socially motivated ventures, according to Yunus, would use power of economics to achieve their targets, which I find more appealing than relying on charities and donations. This model also differs from for-profit companies that only achieve profit-maximization. I visualised this in a small chart titled “Social Business in the Light of Income Generation”. http://www.marcelmuench.de/2013/01/perspectives-on-social-and-sustainable-business/
Feel free to discuss. Thanks.
BY Mark Van Ness-Real Leaders
ON May 5, 2013 12:06 PM
Where do you see the social enterprise model fitting in?
BY Dan Nicollet
ON May 8, 2013 06:31 PM
Very surprising that this article doesn’t mention social impact bonds (SIBs). Maybe this is too new for a 2009 article. Would be interested in discussing SIBs with anyone else looking into them.
Regards,
Dan
BY Jason Hilborn
ON May 28, 2013 02:15 AM
Thank you so much for this, I am in the beginning phases of developing a nonprofit organization, and this was incredibly insightful.
BY Grant J
ON October 21, 2013 02:03 PM
A lot of these seem like variations on crowd-funding. I guess the difference is that you want the product/services for the customer paid for by someone else. In that way, the non-profit is a kind of broker. But often you’ll only get this funding from a crowd. It seems difficult to have a few big-ticket benefactors.
BY Sam Brotman
ON December 17, 2013 11:12 PM
I stumbled across this article and it was a great read. Some of the other participants have mentioned tax issues. Especially in tough economic times, I think there’s a certain obligation of our government to ease the restrictions on forming and maintaining 501(c) organizations. Speaking from the perspective of a practicing tax attorney in San Diego, I see alot of non-profits stifled by compliance and regulatory issues. I’ve written about this in my blog, http://www.sambrotman.com, and have previously discussed alot of issues related to non-profits. Truthfully, funding would be much easier if non-profits had less to worry about and could devote more time to building and maintaining their own operations. What responsibility does our government have to ease the tax restrictions in order to make non-profits and the private enterprises that help fund them more effective? Just a thought.
BY Peter Zehren
ON February 10, 2014 07:07 AM
These are great but painfully miss an entire part of the nonprofit sector: arts organizations, dance companies, public radio stations and membership associations. Clearly, nonprofits are defined by the parameters of our own familiarity. These skew towards social service organizations. Still, a good description of this part of the sector.
BY Stephen Bisk
ON February 17, 2014 08:02 AM
It would be great to track second-tier (from $5M) and even third-tier (from $1M) fundraising models.
BY Always Moving & Relocation
ON February 24, 2014 12:05 PM
An excellent and much needed article. I agree with Sam on the need to ease restrictions on the forming and maintaining of the 501(c) as we have just went through the process of getting ours. The “red tape” involved can at times discourage you and distract you from your primary goal or mission. Once again, a very good and informative read.
BY Carolyn Williams
ON June 25, 2014 03:00 PM
I would like to start up a small non-profit. I just feel overwhelmed with the thought of taking it on. I really don’t know if it would be worth it. After reading most of the comments, I’m not taking away from most of the comments that its really worth the effort!
BY Meg
ON August 22, 2014 04:47 PM
This is an excellent article for those seeking to start a social enterprise - There are so many different funding models out there and having them laid out makes the nonprofit sector seem much for attainable for social entrepreneurs.
BY Nelson T. Enojo
ON January 8, 2015 07:30 PM
Excellent article! Policy Innovator, #6 model, sending goose pimples. Will be exploring this model. Thank you so much.
BY Mike Alyea
ON January 12, 2015 10:48 AM
“the Big Bettor. Often, the primary donor is also a founder, who wants to tackle an issue that is deeply personal to him or her.” ..... This is me.
I’m planning to stand up a new non profit to foster ocean stewardship through education, education through exposure and foster a love of the sea. The organization, Sail Our Seas, will provide small groups ‘fee for service’ educational offshore marine science exploration excursions on a well equipped sailing vessel.
I want to donate a fairly large sum of cash, purchase and donate a sailboat in order to jump start the operation and as ‘proof of concept’ for future donors.
If I donate to ‘my own’ non profit, can I claim the donation on my personal income tax return up to the limits set by the IRS? Can all the other board members also claim their initial and on going donations?
BY Prashant Bhardwaj
ON February 21, 2015 08:55 AM
I couldn’t agree more with your statement that “When nonprofits and funding sources are not well matched, money doesn’t flow to the areas where it will do the greatest good. Too often, the result is that promising programs are cut, curtailed, or never launched.”
The 10 types of donors you identify in this article all have one key thing in common: When budgets are being cut, it becomes increasingly important to them that their money is going to not only a worthy cause, but an organization who produces measurable and meaningful results in the community.
Unaccounted non profit will end up in trouble.
BY Nelson T. Enojo
ON February 21, 2015 04:06 PM
This is only my observation and maybe this happens only in my own experience.
When funds are given to an organization, a government or an institution, a greater portion of the amount is spent on meetings. These are the elite planners of which most does not settle in cheap meeting places with all the elegances in accommodations, travel and costly allowances.
Stakeholders ‘consultative’ meetings seems like gathering for compliance only, as maybe demanded by donor organizations. The processes takes too long and a whole year will just pass by.
Funds attracts cooperations but it should not be limited only to planning wherein most of the “bulk” is spent and only a fraction goes to the intentions.
As funders, maybe we have not tried giving the whole ‘bulk’ directly to the stakeholder. We know exactly that this group are not prepared to manage the sum but this would lead us in finding thought leaders to move.
Thank you. Just an observation.
BY Matt Cila
ON February 28, 2015 02:57 AM
Couldn’t agree with it more. Some people make sublime posts like these a topic of debate. Ironic
BY seoengine
ON May 30, 2015 12:18 PM
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BY Caroline Wertz
ON June 27, 2015 05:32 PM
Wow, you folks really missed a mark with this. I agree with Laura, your article focused only on very large organizations and COMPLETELY overlooked the vast majority of nonprofits that exist in America-those with budgets below $5M. Having just spent the last 10 years as a capacity building consultant for smaller nonprofits, I can tell you that very few (if any) would fit under one of these models. If they didn’t I’d advise them right away to stop relying so heavily on a single source of revenue and diversify. Many nonprofits provide a social service to the community and rely on a mix of foundation and local government grants, small government contracts, in-kind donations, contributions from individuals and corporations and, when appropriate, earned income/fee-for-service. Often donations from individuals and business are motivated purely from altruism and a desire to improve the lives of those in their community-not because they have ever directly benefited from the service. And the greater the diversity among the mix of revenue sources, the healthier the nonprofit. Your article FULLY neglects this “healthy mix” model. SSIR, you are great at thinking, but please, please expand your minds past the ivory tower of mega-nonprofits and put them on the ground, where most nonprofits operate. They have value and could use your thinking also.
BY Nelson
ON July 10, 2015 04:34 AM
I agree Caroline. We’ve manage to organize our city dumpsite scavengers community into a duly certified association as requite for funding from local government agencies. That was in 2009. Until today, we still find it difficult to persuade funding institution for support even after we complied the requirement.
This year will try the “Collective Impact” approach or the “Healthy Mix” model. We started documenting activity at https://www.facebook.com/groups/southernleyteaction2020/
Thanks Caroline.
BY Wanda Myricks
ON July 31, 2015 07:25 AM
There are numerous various other business that might tell a comparable story. Earlier this year, a research study by the Commercial Journal exposed that the 454 firms that had gone public under the regulations of the JOBS Act produced roughly 82,000 brand-new works. The variety of employees for these companies was up roughly 30 percent from their pre-IPO headcount. Comparative, from the time of implementation of the JOBS Act to the moment the research study was carried out, overall private-sector work of 15 year old was up just 6.6 percent. To be reasonable, some of these companies would have gone public and would certainly have produced new tasks—also without the JOBS Act. The expedited IPO stipulations made it simpler for these business to raise funding with a successful public offering.
While it is long previous time for the SEC to settle the crowdfunding rules, there will certainly still be a lot more function to do. For example, studies indicate the current surge in banking rules as contributing to the failure of brand-new financial institution start-ups. Less new financial institutions mean a lot less accessibility to competitive resources for households and businesses.
Our patent regulations, tax obligation code, and also business-formation regulations all require reform. The bad news is that much remains to be done. Fortunately is that the JOBS Act is proof that we can actually make progress in developing the sort of setting that is essential to sustain the startups and entrepreneurs we are all depending on to grow our economic situation.
BY DesertBk
ON August 3, 2015 02:01 AM
When funds are given to an organization, a government or an institution, a greater portion of the amount is spent on meetings. These are the elite planners of which most does not settle in cheap meeting places with all the elegances in accommodations, travel and costly allowances.
BY Nelson
ON August 3, 2015 06:53 AM
I don’t know if this would work Desert BK. Were obsessed with the theory of collective impact. And, started forming a local backbone group. One way to raise funds is by joining calls for project proposals. Should entry be chosen, the prize money will go directly to target beneficiaries (Scavengers Community). They will be the one to manage the funds and become our “employers.”
Hope this will work and give transparency a chance. Thank you.
BY Mike
ON August 4, 2015 07:54 AM
As long as there’s a public transparency, non profit organizations will always be fine. It will be a different situation if they don’t give it.
BY Bill
ON August 15, 2015 05:09 PM
Excellent article ... you’ve helped reframe 20+ years in the voluntary sector business ... great perspective, clear and well laid out ... thanks! -
BY Dealos
ON September 26, 2015 02:15 PM
I may be wrong, but when someone makes money on something, can we consider this as being non-profit?
Anyway it is a very nice article 😉
BY Dealos
ON September 26, 2015 02:18 PM
Edit:
Consider this: http://www.dealoscope.com
does this website useful or is it just to make money.
You see, thinks are not so simple 😊
BY Joe Willaims
ON October 8, 2015 03:41 PM
Really a nice article covering all the important facts. I would recommend everyone to go through this once. Though if the length would have been little less it would have been awesome.
BY Mati
ON November 2, 2015 04:11 AM
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BY jonathan
ON November 16, 2015 11:11 AM
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ON November 23, 2015 06:59 AM
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BY jonathan
ON January 8, 2016 07:49 PM
nice article, thanks
BY Terence
ON March 10, 2016 07:48 AM
An interesting division of non-profit organizations.
BY P.B
ON April 14, 2016 12:53 AM
Thanks for your post !
BY Mathieu
ON May 8, 2016 08:05 AM
I think non profit funding models can be various, for example I know a website who give back a % of his incomes to some welfare organisation. So the consumer can get an advantage when he does his shopping online plus its helpful for lot of World Organisation such as WWF and stuff.
If you want to check the website its : http://www.cafaitquoi.fr/
Regards,
Mathieu
BY Grant B
ON November 2, 2016 04:09 PM
I think new business models would help the non profit sector.
BY Derek M
ON July 6, 2017 10:03 PM
Excellent article, relevant in years to come.
Thanks for this.
BY Johanafeed
ON January 13, 2018 09:53 PM
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BY Kevin Stone
ON November 9, 2018 09:00 PM
Nice and good
BY Kevin Ryan
ON December 17, 2018 04:15 PM
While funding is the lifeblood of any nonprofit out there, a slight distinction between funding and unrelated business income needs to be made. Any funding that a nonprofit receives via individual donation, corporate donation, or grant can’t be taxed as it was donated to advance the mission of the nonprofit. With that said, any nonprofit can have unrelated business income that is taxable. For example, if a nonprofit created an app that does not directly advance the mission of a nonprofit and if that nonprofit charges users to use the app, that nonprofit can be taxed for unrelated business income. There are a number of exceptions to this rule, but I thought unrelated business income deserved a brief mention. If you’d like to learn more about unrelated business income, feel free to check out the following article that I came across: https://irssolution.com/blog/whats-required-of-non-profit-tax-reporting/
BY Craig Blumhagen
ON January 17, 2019 03:48 AM
There is another growing NPO Model whereby the non-profit runs for profit businesses, with the profits rolled back into the NPO to fund services. There is a lady in San Francisco who runs a prisoner re-entry NPO, with a large restaurant on campus, which provides about 20% of total NPO operating costs.
BY Mario Roset
ON January 30, 2019 04:50 AM
Hey, any updates on this topic? The original note was published in 2009. What have changed in the last 10 years related to sustainability models?
BY Sam G.
ON April 22, 2019 06:09 AM
Agree with Mario - I’d love to see an update to this article. In particular, I wonder whether the authors have changed their opinions about NPOs owning or operating for-profit ventures as a source of funding, as per Craig’s comment.
BY Karen S Sai
ON June 26, 2019 08:31 AM
Excellent article. I wish we could research models with a more world or Africa twist. The models here are so well summarized and explained, i believe a similar exercise with NGOs and NPOs and donors working in the global south/developing world would be extremely helpful for people doing the work that I do…trying to get African non profits to think strategically about resource mobilization and fund raising.
BY Phineas Magwenzi
ON June 4, 2020 01:35 AM
A very rich and interesting article but needs some updating to incorporate the latest design thinking concepts and bit of contextualizing.
BY Ruth Richerson
ON October 13, 2020 10:13 AM
Would love to see Ten Funding Models 2.0! Lean Impact’s Growth chapter offers additional models. And the article What’s Your End Game is a good complement to the concepts here.
BY Godfrey Senkaba
ON June 5, 2021 12:06 AM
This is a great article, thank you. An evaluator who is charged with the responsibility of supporting a Non-Profit’s business development efforts should seek to know the type and nature of funding type and requirements-if any. For example, the "Public Provider" has specific requirements that may impact the way an intervention is designed, how it will be monitored and evaluated. With the "Heartfelt Connector" model, the non-profit should be more creative in their designs and complex monitoring and evaluation systems may be less necessary as long as the funder is comfortable. In addition, more evidence of the suggested interventions and outcome pathways may be needed more for the "Policy Innovator" model than for "Local Nationalizer".
BY Stephen Urich
ON October 9, 2021 07:30 PM
You should also look into Google Ad Grants which are free ads that Google gives to qualifying nonprofits. You can learn more at https://www.grantrepublic.com