How the organization can make money

How Do Nonprofits Make Money?

Where can we find it? In tough economic times, these types of questions become more frequent and pressing. Unfortunately, the answers are not readily available. There are consequences to this financial fuzziness. Too often, the result is that promising programs are cut, curtailed, or binary option negative reviews launched.

And when dollars become tight, a chaotic fundraising scramble is all the more likely to ensue. This is particularly true when it comes to understanding how different businesses operate, which can be encapsulated in a set of principles known as business models.

The value of such shorthand is that it allows business leaders to articulate quickly and clearly how they will succeed in the marketplace, and it allows investors to quiz executives more easily about how they intend to make money. This back-and-forth increases the odds that businesses will succeed, investors will make money, and everyone will learn more from their experiences. That is because the different types of funding that fuel nonprofits have never been clearly defined.

Through our research, we have identified 10 nonprofit models that are commonly used by the largest nonprofits in the United States. Our intent is not to prescribe a single approach for a given nonprofit to pursue. Instead, we hope to help nonprofit leaders articulate more clearly the models that they believe could support the growth of their organizations, and use that insight to examine the potential and constraints associated with those models.

Beneficiaries Are Not Customers One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business.

When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary for example, integrating a prisoner back into society or saving an endangered speciesit has not identified its economic engine.

That is a separate step. Duke University business professor J. Gregory Dees, in his work on social entrepreneurship, describes the need to understand both the donor value proposition and the recipient value proposition. It is also why we use how the organization can make money term funding model rather than business model to describe the framework.

A business model incorporates choices about the cost structure and value proposition to the beneficiary. A funding how the organization can make money, however, focuses only on the funding, not on the programs and services offered to the beneficiary. All nonprofit executives can use our 10 funding models to improve their fundraising and management, but the usefulness of these models becomes particularly important as nonprofits get bigger.

Our research of large nonprofits confirms this. Each had also built up highly professional internal fundraising capabilities targeted at those sources. In other words, each of the largest nonprofits had a well-developed funding model. The larger the amount of funding needed, the more important it is to follow preexisting funding markets where there are particular decision makers with established motivations.

Large groups of individual donors, for example, are already joined by common concerns about various issues, such as breast cancer research.

And major government funding pools, to cite another example, already have specific objectives, such as foster care. Although a nonprofit that needs a few million dollars annually may convince a handful of foundations or wealthy individuals to support an issue that they had not previously prioritized, a nonprofit trying to raise tens of millions of dollars per year can rarely do so.

The first Earth Day in coincided with a major expansion in giving to environmental causes; the Ethiopian famine of led to a dramatic increase in support for international relief; and awareness of the U. Changes cannot be foreseen, however, and, hence, can not be depended on as a source of funding.

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Earl Martin Phalen, cofounder of BELL, an after-school and summer educational organization, captured the benefits of such intentionality well, summing up his experience for a group of nonprofit leaders in Then we got serious in thinking about our model and identified an ongoing type of government funding that was a good match for our work.

While it required some program changes to how the organization can make money, we now predictably cover 70 percent of our costs in any locality through this approach.

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To how the organization can make money useful, the models cannot be too general or too specific. For example, a community health clinic serving patients covered by Medicaid and a nonprofit doing development work supported by the U.

How to Make Money Running a Nonprofit

Agency for International Development are both government funded, yet the type of funding they get, and the decision makers controlling the funding, are very different. Lumping the two together in the same model would not be useful. At the same time, designating a separate model for nonprofits that receive Title I SES funds, for example, is too narrow to be useful.

In the end, we how the organization can make money on three parameters to define our funding models—the source of funds, the types of decision makers, and the motivations of the decision makers. This allowed us to identify 10 distinct funding models at level that is broadly relevant yet defines real choices. One possible model was nonprofits supported by earned-income ventures distinct and separate from their core mission-related activities.

Another possible model was nonprofits that operated on a strictly fee-for-service model in either a business-to-business or direct-to-consumer fashion, without important supplementary fundraising from members or prior beneficiaries or underlying government support.

Although there are some nonprofits supporting themselves with such funding approaches, they were not present among the large nonprofits that we studied. It is our belief that these types of approaches do not lend themselves to large-scale, sustained nonprofit advantage over for-profit entities.

What follows are descriptions of the 10 funding models, along with profiles of representative nonprofits for each model.

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The models are ordered by the dominant type of funder. The first three models Heartfelt Connector, Beneficiary Builder, and Member Motivator are funded largely by many reviews about binary options on iqoption donations.

The next model Big Bettor is funded largely by a single person or by a few individuals or foundations. The next model Resource Recycler is supported largely by corporate funding. And the last two models Market Maker and Local Nationalizer have a mix of funders.

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Heartfelt Connector Some nonprofits, such as the Make-a-Wish Foundation, grow large by focusing on causes that resonate with the existing concerns of large numbers of people at all income levels, and by creating a structured way for these people to how the organization can make money where none had previously existed. Nonprofits that take this approach use a funding model we call the Heartfelt Connector.

Some of the more popular causes are in the environmental, international, and medical research areas. They are different from nonprofits that tap individuals with how the organization can make money religious beliefs, political leanings, or sporting interests, who come together to form organizations in the course of expressing their interests. Heartfelt Connectors often try to build explicit connections between volunteers through special fundraising events. The Susan G.

Komen Foundation is an example of a nonprofit that uses the Heartfelt Connector model.

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Established inthe Komen Foundation works through a network of affiliates to eradicate breast cancer as a life-threatening disease by funding research grants, by supporting education, screening, and treatment projects in communities around the world, and by educating women about the importance of early detection.

Its major fundraising vehicle is the Susan G. Komen Race for the Cure. The foundation and how the organization can make money affiliates hold about running races each year that draw more than 1 million participants. These events not only allow individuals to give money; they also engage volunteers to put together teams, solicit funds, and participate in the race day experience. Nonprofit leaders considering the Heartfelt Connector funding model should ask themselves the following questions: Have a large cross section of people already shown that they will fund causes in this domain?

Can we communicate what is compelling about our nonprofit in a simple and concise way? Does a natural avenue exist to attract and involve large numbers of volunteers? Do we have, or can we develop, the in-house capabilities to attempt broad outreach in even one geographic area? Beneficiary Builder Some nonprofits, such as the Cleveland Clinic, are reimbursed for services that they provide to specific individuals, but rely on people who have benefited in the past from these services for additional donations.

We call the funding model that these organizations use the Beneficiary Builder.

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Two of the best examples of Beneficiary Builders are hospitals and universities. But the total cost of delivering the benefit is not covered by the fees. As a result, the nonprofit tries to build long-term relationships with people who have benefited from the service to provide supplemental support, hence the name Beneficiary Builder. Although these donations are often small relative to fees averaging approximately 5 percent at hospitals and 30 percent at private universitiesthese funds are critical sources of income for major projects such as building, research, and endowment funds.

Donors are often motivated to give money because they believe that the benefit they received changed their life. Organizations using a Beneficiary Builder model tend to obtain the majority of their charitable support from major gifts. Princeton University is an example of a nonprofit that uses the Beneficiary Builder model. The university has become very adept at tapping alumni for donations, boasting the highest alumni-giving rate among national universities— Nonprofit leaders considering the Beneficiary Builder funding model should ask themselves the following questions: Does our mission create an individual benefit that how the organization can make money also perceived as an important social good?

Do individuals develop a deep loyalty to the organization in the course of receiving their individual benefit? Do we have the infrastructure to reach out to beneficiaries in a scalable fashion? Member Motivator There are some nonprofits, such as Saddleback Church, that rely on individual donations and use a funding model we call Member Motivator.

How the organization can make money individuals who are members of the nonprofit donate money because the issue is integral to their everyday life and is something from which they draw a collective benefit.

Nonprofits using the Member Motivator funding model do not create connections binary options rationale for group activity, but instead connect with members and donors by offering or supporting the activities that they already seek.

These organizations are often involved in religion, the environment, or arts, culture, and humanities. A significant portion of the money raised is dedicated to land and turkey conservation in the community from which it was donated. Nonprofit leaders considering the Member Motivator funding model should ask themselves the following questions: Will our members feel that the actions of the organization are directly benefiting them, even if the benefit is shared collectively?

Do we have the ability to involve and manage our members in fundraising activities?

Can we commit to staying in tune with, and faithful to, our core membership, even if it means turning down funding opportunities and not pursuing activities that fail to resonate with our members? Big Bettor There are a few nonprofits, such as the Stanley Medical Research Institute, that rely on major grants from a few individuals or foundations to fund their operations.

We call their funding model 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.

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Although Big Bettors often launch with significant financial backing already secured, allowing them to grow large quickly, there are other instances when an existing organization gets the support of a major how the organization can make money who decides to fund a new and important approach to solving a problem.

The nonprofits we identified as Big Bettors are focused either on medical research or on environmental issues. The primary reasons that Big Bettors can attract sizable donations are: the problem being addressed can potentially be solved with a huge influx of money for example, a vast sum can launch a research institute to cure a specific illness ; or the organization is using a unique and compelling approach to solve the problem. Nonprofit leaders considering the Big Bettor funding model should ask themselves the following questions: Can we create a tangible and lasting solution to a major problem in a foreseeable time frame?

Can we clearly articulate how we will use large-scale funding to achieve our goals? Are any of the wealthiest individuals or foundations interested in our issue and approach? Public Provider Many nonprofits, such as the Success for All Foundation, work with government agencies to provide essential social services, such as housing, human services, and education, for which the government has previously defined and allocated funding.

Nonprofits that provide these services use a funding model we call Public Provider. In some cases, the government outsources the service delivery function but establishes specific requirements for nonprofits to receive funding, such as reimbursement formulae or a request for proposal RFP process.

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As Public Providers grow, they often seek other funding sources to augment their funding base. TMC formerly the Texas Migrant Councilwhich supports children and families in migrant and immigrant communities, is an example of an organization that uses the Public Provider funding model. As TMC grew, its leaders sought to reduce how the organization can make money dependence on this one funding source and to identify other government funds.

TMC now receives funding from a variety of federal, state, and local government sources. TMC has expanded from Texas into seven additional states and is offering new programs, such as literacy, prenatal care, and consumer education.

Nonprofit leaders considering the Public Provider funding model should ask themselves the following questions: Is our organization a natural match with one or more large, preexisting government programs?

Can we demonstrate that our organization will do a better job than our competitors? Are we willing to take the time to secure contract renewals on a regular basis? Policy Innovator Some nonprofits, such as Youth Villages, rely on government money and use a funding model we call Policy Innovator.

These nonprofits have developed novel methods to address social issues that are not clearly compatible with existing government funding programs. They have convinced government funders to support these alternate methods, usually by presenting their solutions as more effective and less expensive than existing programs.

By contrast, Public Providers tap into existing government programs to provide funds for the services they offer. This nonprofit provides transitional housing for the homeless and develops affordable permanent housing for low-income families. Nonprofit leaders considering the Policy Innovator funding model should ask themselves the following questions: Do we provide an innovative approach that surpasses the status quo in impact how the organization can make money cost and is compelling enough to attract government funders, which tend to gravitate toward traditional solutions?

Can we provide government funders with evidence that our program works?

Joanne Fritz Updated December 23, Nonprofits do not exist to make money. Their goal is to make an impact.

Are we willing and able to cultivate strong relationships with government decision makers who will advocate change? At this time are there sufficient how the organization can make money on government to overturn the status quo?

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Beneficiary Broker Some nonprofits, such as the Iowa Student Loan Liquidity Corporation, compete with one another to provide government-funded or backed services to beneficiaries. Nonprofits how the organization can make money do this use what we call a Beneficiary Broker funding model. Among the areas where Beneficiary Brokers compete are housing, employment services, health care, and student loans. What distinguishes these nonprofits from other government-funded programs is that the beneficiaries are free to choose the nonprofit from which they will get the service.

The Metropolitan Boston Housing Partnership MBHPa regional nonprofit administering state and federal rental assistance voucher programs in 30 Massachusetts communities, is an example of a nonprofit how the binar works uses the Beneficiary Broker funding model. Since launching the organization inMBHP has developed a reputation as a reliable provider of housing vouchers for families in need.

MBHP is the largest provider of housing vouchers in the Boston area, connecting more than 7, families to housing at any one time. MBHP also provides related services, such as education and homelessness prevention programs. The remaining funds come from corporations and foundations.

How the organization can make money leaders considering the Beneficiary Broker funding model should ask themselves the following questions: Can we demonstrate to the government our superior ability to connect benefit or voucher holders with benefits, such as successful placement rates and customer satisfaction feedback?

Can we develop supplemental services that maximize the value of the benefit? Can we master the government regulations and requirements needed to be a provider of these benefits?

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Can we find ways to raise money to supplement the fees we receive from the benefits program? Resource Recycler Some nonprofits, such as AmeriCares Foundation, have grown large by collecting in-kind donations training in working with binary options corporations and individuals, and then distributing these donated goods to needy recipients who could not have purchased them on the market.

Nonprofits that operate these types of programs use a funding model we call Resource Recycler. Businesses are willing to donate goods because they would otherwise go to waste for example, foods with an expiration dateor because the marginal cost of making the goods is low and they will not be distributed in markets that would compete with the producer for example, medications in developing countries.

In kind donations typically account for how the organization can make money majority of revenues, but Resource Recyclers must raise additional funds to support their operating costs. The vast majority of Resource Recyclers are involved in food, agriculture, medical, and nutrition programs and often are internationally focused. This organization distributes nearly 30 million pounds of food annually to more than local organizations, including food pantries, soup kitchens, day care centers, senior centers, and homeless shelters.

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