Ultimate Guide to Nonprofit Fundraising
Nonprofit fundraising is a complicated topic and a critical function. Nonprofits are in a unique position from businesses in that they cannot price their products and services to, well, make a profit. Operating budgets must be conceived from other sources than program revenues.
This is a guide focused on fundraising for nonprofits. It will discuss the following major topics:
1. Crafting a nonprofit fundraising strategy
2. Optimizing your organization
3. Kickstarting your donor development
4. Developing your marketing campaign
5. Leveraging grants and other funding opportunities
Before we begin, here is a brief background on funding.
How are nonprofits funded?
The following categories make up the bulk of funding for nonprofits:
- Fees for Goods/Services from Private Sources – this is driven largely by hospitals and higher-education nonprofits who charge fees for services, tuition, etc.
- Fees for Goods/Services from Government Sources – includes things like Medicare and Medicaid reimbursements
- Government Grants – cash awarded to organizations with varying stipulations attached
- Private Contributions – charitable donations and grants from private individuals, corporations, etc.
- Investment Income – endowments make up a significant portion of income, especially among foundations
Where do donations come from?
Private contributions make up the largest portion of non-program-related revenue streams for nonprofits. These donations totaled $373.25 billion in 2015.
Of this amount, 71% came from individuals, while the rest came from foundation grants, bequests and other corporate philanthropy.
While this represents enormous potential, it brings even more enormous challenges for nonprofits looking to focus marketing and fundraising strategies on specific channels. The need for personal touch with most individual donors makes it hard to scale funding strategies focused on individual donors.
Craft the perfect nonprofit fundraising strategy
Any successful initiative requires a plan. To maximize your organization’s potential, it is important to understand where you are today and define specific paths to where you need to be in the future. A useful strategic plan for your fundraising function will provide a sense of direction for your organization and outline measurable goals to assess progress.
1. Establish a vision
The first thing you want to do is create an ideal version of your organization. Leslie Allen from Front Range Source published a good guide on the topic where she suggests you ask yourself the following questions:
A bit of administrative work should also be done now… specifically setting a budget for how much you wish to spend on this nonprofit fundraising strategy and an implementation timeline that you wish to achieve your goals by.
2. Understand your current state
Describe your organization as it exists today. This will form the foundation for which your strategy will be executed against.
You should take inventory of all the different funding sources you currently use and have used in the past. Try to rank and prioritize the effectiveness and quantity of funds raised from each one. Take note of what’s worked in the past and what hasn’t.
Take an external perspective if possible. If you can afford to audit your organization, do it. If not, be as unbiased as possible in determining how effective your organization performs in this area, and compare it to other organizations. Use either current employees or colleagues from outside the organization to get a picture of how other nonprofits perform.
Understand your strengths and weaknesses! If you are too overly funded by a specific source-let’s say a specific government grant that comes in each year and funds 90% of your budget-you need to address this. Like any business overly concentrated on one customer, you run the risk of being shut down, should the government grant stop.
Don’t limit yourself to single or few funding sources whenever possible. Make your organization invulnerable to things you can’t control.
3. Envision your future state
Use the answers produced in your vision creation to help craft your future state. Where the vision phase is about creating conceptual ideals for what your organization should look like, this phase should be about quantifying them.
Decide exactly what you want to concentrate on. If you decided that a focused nonprofit fundraising strategy was the way to go, make sure to document why it is the best course and what the benefits of this choice will be.
The result of this phase should be a set of goals that you want your organization to achieve.
4. Perform a gap analysis
By quantifying your future state and documenting where you stand today, your next step is to perform a gap analysis. It is critical to understand where all the major gaps are in your organization.
If you have 90% of your revenue coming from one government grant and your future state involves diversifying your revenue streams, then obviously here is a major gap in your strategy.
Always know your organization’s vulnerabilities. Prioritize what you think are the most critical gaps and areas that could produce the most impactful change if they are closed.
5. Connect the dots
The final step requires determining exactly what actions need to be done to achieve your desired state.
Break up the goals into key initiatives. You should ideally come up with a list of projects that can be executed on, each with different rankings for cost, effort, time, and impact.
Create a matrix that assesses each project against these four dimensions and rank the projects according to your priorities. If your strategy needs to be completed quickly with less regard to cost, then rank projects requiring less time higher. If you want the biggest impact of your initiatives, then rank those ones higher, with the understanding it might take longer and cost more than other projects.
Always understand the project management triangle of cost vs. scope vs. time. Any strategic decision will be based on these three constraints. Any change to one constraint necessitates a change in the others. Or else quality suffers.
Be sure to get all the right stakeholders involved in this priority setting process to make sure your strategic alignment matches your organization’s vision and your board’s idea of what needs to be done.
Optimize your organization for change
A common mistake among nonprofits is the lack of a single person who oversees the entire “money function” of the organization. It isn’t enough to have an individual who manages only government contracts, or only individual donors – you absolutely must have someone who oversees all cash flows into the organization.
Development director office
To ensure you hire or promote from within the right candidate for the job, you must be able to offer enough of a salary to entice someone to stay and grow the organization. Check competitive rates of not only nonprofit development directors, but also nonprofit CFOs, for-profit CFOs, etc.
It may be painful trying to come up with the money to pay someone to do this job-which is typically lower than executive director or other high-ranking positions in your organization-but it’s worth it.
You’re paying for people who spend 100% of their time focused on money. And in a few years’ time, they should be paying their own salaries with the work they’ve done to increase your organization’s capacity.
Build a business environment that enables development.
Beyond just funding the salary of your rock-star fundraiser, it is important to give this person authority over creating a team and office within your organization. By choosing the right person, you can ensure that they know exactly how many staff they need and what roles they need to hire to perform specific tasks (marketing plans, technology upgrades, cold calling, etc.).
Additionally, you must budget for costs like software, computer upgrades, marketing collateral, association dues, professional development, and so forth.
You want to create an environment that enables development success. In this way, you help retain top talent that can executive on longer-term strategies that have the highest potential for organizational growth.
Bottom line – You want to hire the right person who will help grow your organization. They need to have the keys to the kingdom when it comes to seeing how all money flows in and out. They need the ability to propose and set a budget and to executive on their strategies.
Bonus tip – leverage volunteers.
Use unpaid help to support your efforts in reaching out to people. Especially for organizations with slim staff and budgets, this can be an effective tool. Tap into your alumni pool and other partners/alliances you may have formed in the past.
Volunteers can be especially useful when promoting events, selling tickets, or soliciting sponsorships.
Engage with your board
Your board of trustees ultimately sets the direction and vision for your organization. As a result, we need to spend some significant time making sure everyone is aligned with what we are trying to accomplish with fundraising.
The role of the board typically changes based on the size of the organization-smaller organizations have board members that typically take a more operational and hands-on approach, while larger organizations may have board members more focused on governance issues.
Regardless of the size of your nonprofit, it is critical to make sure everyone understands the importance of philanthropy and can agree on a high-level strategy for accomplishing the mission.
Have an open conversation about what role board members can play in nonprofit fundraising. Beyond agreeing on strategies, this can be an extremely beneficial task in helping to grow and retain donors. For example, a simple thank-you goes a long way. A fundraising study performed by Cygnus found that when donors got a thank-you call from board members within days of making a gift:
- 93% said they would definitely or probably give again
- 84% said they would make a larger gift
- 74% said they would continue giving indefinitely
Find ways to engage donors. Use board members for this purpose. Their clout alone brings great respect to the people who donate to the organization. This should be used to your advantage.
Just as important as engaging board members with donors, is keeping donors engaged in the strategy. Present strategy proposals and work in their feedback. This ensures alignment and sense of purpose with board members.
Keep everyone involved in the budget setting process so they know a strategy goes beyond simple concepts and pipe dreams. The board needs to know that fundraising is staff driven and presenting a simple projection of anticipated costs and revenue with a strategy can go a long way in helping drive change.
Most importantly – realize when you have good board members and do everything you can to retain them. Keep them motivated. Listen to what they say. Their contacts and knowledge go a long way toward helping drive your strategy, so realize what you have while you have it and don’t risk losing good board members to greener pastures.
Measuring and communicating impact
After staff and board considerations, the next big item to prepare for is impact measurement. You need to be able to communicate your story with words and numbers.
Nonprofit fundraising is much more than asking for donations. It includes everything before and after this step… from searching for supporters to expressing gratitude and measuring impact. Measuring impact helps you do two things:
- Evaluate fundraising campaign effectiveness
- Demonstrate your program’s effectiveness and help tell a story that will attract future funding
Your programs already exist to further your organization’s mission. And for programs that do it well, there should be data that prove it. Make sure to have the systems in place to capture the results of your programs’ efforts. (Note: systems don’t need to be complicated… they can simply be processes used to document results of activities.)
Use your mission to determine a set of outcomes you wish to achieve. Then work backwards to determine the activities you can perform to get there.
For more information check out Whole Whale’s guide on measuring nonprofit impact.
Once you’ve set up your impact measurement processes, find ways to communicate your results on your website. This may come in the form of dashboards, case studies, personal stories, etc. Be sure to consistently update your content to not only keep things fresh, but communicate your continued success.
If a donor visits your site and sees overwhelming evidence of the good things you’re doing, he will be more likely to buy into your cause and believe that his donations are being well spent.
How much do you spend on fundraising?
CharityWatch analyzes the effectiveness of nonprofits across a wide range of statistics. One particular interesting number is the “Cost to Raise $100.” Exactly how it sounds, this reflects how much it costs a charity to bring in $100 of public donations.
On this basis, a nonprofit is considered highly efficient if its cost to raise $100 is $25 or less.
Practically speaking, determine how much you want to raise with your nonprofit fundraising strategy or even a specific campaign. Start with a 4:1 ratio to get to the $25 mark and go from there. If you wanted to raise $5,000,000, you would start your budget at $1,250,000. Adjust from there.
Kickstart your donor development
Now the section that probably brought most of you here… actual donor development.
You have your organization set up for success. You have a clear vision of what you want to accomplish. Your board is behind you and you have the right staff to tackle the job. Now how do you actually find funding?
Prospecting and donor research
Many experts like to talk about a fundraising pyramid. A strong general fund of small donors supports a smaller core of mid-level gifts on top of which is a few major donors for your organization.
You want to maximize each level of this pyramid and continuously work on moving people upward.
The first step is to create a list of prospects. The most common prospecting strategies combine the following approaches:
- Direct mail or email
- Brainstorming of prospects (using board members and staff alike)
- Prospect research (databases full of free or purchasable contact lists)
Donors give for their own reasons, not yours. When assessing your current prospect pool and searching for more, evaluate the following characteristics of each prospect:
- Longevity – How long has this person been giving? Should they possibly move up the pyramid if they’ve been here a while?
- Cumulative giving – Are prospects donating in lump sums or giving multiple times per year? Look for the latter as good opportunities to move up the pyramid.
- Engagement – Look for people who are reading your newsletters, responding to your calls, reaching out about your organization… these are the types you want to move up the pyramid.
Leverage Customer Relationship Management (CRM) systems
When you begin a prospect gathering mission, it couldn’t hurt to start by scrubbing your current database (whether its paper files or an Excel workbook or an entire donor management system). It is good to get a clear idea of everyone you have previously had relationships to understand your likelihood of using these people as a base for your new strategy or as referrals to new candidates.
Once you have a baseline of prospects, decide if you should leverage more advanced technology for your nonprofit fundraising efforts.
The benefits of a formal CRM system are enormous for all types of organizations. With the proper system in place, your organization has the ability to record all communications with donors and prospects, track their personal characteristics, create easy email campaigns, find volunteers, and so on.
Especially useful are these systems’ abilities to report on progress during campaigns and analyze the demographics of donors and prospects. You can run reports that help determine which people in which locations to target for each specific kind of outreach. This helps when trying to nail down a specific donor outreach campaign.
TechSoup has a breakdown of 8 top CRM systems for nonprofits as well. Perform a similar analysis to this when evaluating software for your organization.
Ensure donors keep giving
You have two major goals with donor development:
- Make sure current donors keep giving.
- Try to move donors up to mid-level and major gift level status.
Some useful tips for maintaining and improving donor relationships range from simple thank-you notes to community recognition to providing access to special information or services.
Personal touch goes a long way in cultivating relationships with donors. Invite people individually to events or conference calls you may have. Point out donors who have given in a monthly newsletter. Everyone enjoys a little recognition, especially if they are intent on furthering their own missions of giving.
More tactically, you can use donor surveys and other donor-directed communications to try to get a feel for how they perceive your organization to be doing. Gear your marketing collateral to them based on specific programs and results that you’re achieving.
While you’re publishing data and other marketing collateral for wider consumption, try to focus specific pieces to donors only to let them see inside the progress you’re really making as an organization. You can use a more friendly and informal tone when communicating with current donors, to help aid in the relationship building process.
Hold special events just for donors. Have a social where donors can meet one another and discuss their own missions and visions for what they want to achieve. Everybody appreciates being connected with more people who can help their cause… so use this avenue intelligently to help boost relationships among your community.
Work the pyramid
Asking for more money is never easy, especially if you fear losing a relationship with a person who has given faithfully to your organization for many years.
But you must overcome this fear and ask for more money.
Why would someone consider giving you more money?
First, they must believe in your mission. It must support something they find dear to them. So, communicate your mission accurately and descriptively.
Second, they must believe in your team and that you will use their money wisely. No, they don’t expect a return on their investment, but with the thousands of nonprofits out there competing for their dollars, they have plenty of options to choose from when giving to a charity.
Most importantly, donors increase their gifts when asked to. Unless you ask, they’ll likely continue giving the standard amount-which is fine-but we’re trying to build a fundraising strategy for growth.
Key takeaway – You should aim as high as possible when placing prospects in your donor pyramid. The bigger you make the mid-level and high-level sections, the better off your organization will be. You can count on these larger donations on a more regular basis, which can be used a springboard for future growth.
Develop an impeccable marketing campaign
There are many different tools you can leverage and approaches you can take to boost your nonprofit fundraising strategy.
Major types of communication
The basic types of marketing channels are generally known. You can communicate direct via email, phone call or personal visit. You can communicate to a broader scale with public speaking, newsletters, website content, advertising etc. The main thing to know is what you’re trying to accomplish with each type of communication.
You’re not going to get a major donation from sending out a newsletter-you might, but this type of communication is generally geared to higher-volume, lower-dollar amounts.
You’re typically going to want to use more mass communication methods for filling your pipeline and those earlier-stage types of activities. More direct personal touch is required to close most deals, especially when more money is on the line.
When to use each approach
A good approach uses a mix of all the techniques discussed above. There will be times you want to target individuals and times you’ll want to target groups.
This method can be used whether you’re reaching out to an individual or your entire prospect list. Be sure to use mail over email if you plan to have a later-in-the-process “sales” discussion with a prospect as physical mail has a more personal touch.
Use this technique when you want to connect directly with individuals. Be sure to use personal touch to make the recipient feel that this note has more value than the other things that end up in the trash. Also include a call to action-conversion rates skyrocket by simply including an option to act on your message.
Use this technique when you want to reach out to more than just your immediate community. This can be through printed newspapers and periodicals, on the radio or through television or other forms of media.
Make sure you know the expected return on investment before planning any fundraising dollars to this method, but realize it can pay off especially if you want to educate the masses or get your brand and mission out there.
A much cheaper form of marketing your brand, the use of social media platforms and other online communities allows you to connect with the largest number of potential donors for the lowest overall cost.
Besides simply promoting your content or brand, you can include calls to action like “donate now” on a nonprofit Facebook page. The internet was made to reach people quickly and cheaply. Use it to your advantage.
Host an event that brings together different people in your community and use the platform to raise funds. Everyone likes to be connected to like-minded individuals. By creating somewhat regular events that accomplish this, you can provide spikes in your donation intake at certain times of the year.
An annual appeal may work here. Market the opportunity as an annual or monthly gathering, and give people a reason to attend. The key here is to make sure you don’t overdo it. Don’t host too many events or the idea of a special promotion loses its luster. Why would a donor attend your annual appeal if you actually had weekly appeals? No luster.
When you host an event or produce a new piece of useful content, create a press release to announce it to your community. Like advertising, this has the opportunity of reaching a large number of people.
Just keep in mind that you will get more press coverage in an area if you can show that your news directly impacts the community.
Additional methods for nonprofit fundraising success
Of note are cobranding and affinity marketing. Up to 6% of all product launches rely on some form of cobranding. Get your name attached to others who support similar causes. You shouldn’t see other organizations as merely competitors… but rather as potential complements to your strategy.
Work with partners to build a whole that’s greater than the sum of the parts. Unlock hidden potential by partnering with the right affiliates to help extend your reach beyond your immediate community.
What about crowdfunding?
In a society that’s continuing to be more interested in social impact, this is a potentially huge area to raise funds.
Think of Kickstarter. Anyone can promote any cause and collect money from anyone around the world. All they need to do is connect to an investor’s sense of purpose.
Be aware there are fees attached! If using a public platform, understand the costs associated. Take the time to compare different platforms and factor in the cost to raise money with any effort placed on a platform.
Also be aware of nonprofit fundraising laws! With the internet it is much easier to raise money from people in multiple states, even if you operate in just one. Many states require nonprofits to register in order to conduct fundraising within their jurisdiction-this may apply to more states than intended if you plan to raise funds online. The National Association of State Charity Officials published a guide for social media and internet solicitation.
That being said, there are definitely opportunities to use crowdfunding to your advantage.
Craft the right story
There are many ways to get a person to be interested in your organization. Most include connecting with their individual sense of purpose. You need them to feel the pain you’re trying to solve.
You might think you don’t have all the right details for a truly compelling story, but you’re wrong!
Beth Kanter outlines four classic storylines that work well when soliciting donors:
- Overcoming the monster – Talk about some form of adversity your organization is tackling. Are 99% of kids in your region on subsidized school lunch programs? Okay… tell that story.
- Rags to riches – Use your actual clients or service recipients as a catalyst. Explain the poor circumstances that led to them using your organization, and the 180 degree turnaround you helped them achieve. Don’t be afraid to get detailed in describing the low point.
- Quest – Everyone loves a good quest story. We’re on a quest to a completely carbon neutral society. Where do we stand on that long journey? What are you doing about it?
- Tragedy – Some events have the ability to appeal to the masses. Think of the recent devastating earthquakes across southern U.S. and Puerto Rico. Tell that story. Make people feel compelled to do something for all those suffering.
Leverage grants and other funding opportunities
While donors may make up a good core of your fundraising strategy, there are often overlooked free dollars out there that you may qualify for without realizing. It is important to understand where these areas of opportunity are and to always incorporate grants and other free money into your fundraising plans.
Master grant research
There are growing numbers of online sources that can be used for free (or at reasonable costs) to help in your prospect search. Download the free premium edition of this guide to see a list of the top sources and some of their details and how best to use each one.
Write a killer proposal
Finding the right grant for your organization is only half the battle.
How do you now secure the funding?
If you’ve never written a grant proposal before, check out GrantSpace’s free introductory grant-writing class. It can be done online or in person and should help provide a baseline for writing a good proposal.
GrantSpace also includes a repository of sample documents. This ranges from proposals to letters of inquiry to cover letters to budgets.
Key things to consider…
Do your homework! If you find a grant and it has a request for proposals (RFP), then it should have all the guidelines for you to consider. Read the document carefully. Understand any deadlines, if there is a letter of intent due before the application, the ceiling amount for funding, etc.
Then go to the funder’s website and see what other types of organizations are typically funded. Visit their websites and see the kinds of programs they offer. Does your organization seem to fit this mold? Write your proposal keeping in mind what types of programs worked in the past for this funder.
Start planning. If you agree your organization is a good fit for the grant, meet with your team and start outlining what needs to be done. If a letter of intent (LOI) is required, use it to your advantage. This is your one- or two-page pitch to the funder to show why you’re a great fit for them. If the funder likes you, they will ask you to submit a full proposal. This is potentially a huge time saver, if in fact you are not a realistic recipient for this grant.
Reach out to the funder’s program officer. They’re generally very friendly people and a simple conversation can go a long way. Either you briefly discuss your idea and it’s not a fit, and you’ve saved yourself the time and effort putting together a full proposal.
Or you’re a great fit, you hit it off with the funder, and you’ve started a great relationship together, essentially completing the first stage of the application process.
This could lead to many years of future funding. Don’t overlook this useful step! Try to build a relationship with the funder before you’ve formally applied for funding.
When you finally start your proposal, you should have all the information you need to be confident that you will win the award. It should be 5-15 pages long and cover things such as a summary of your program, background and needs, goals, evaluation process, budget, timeline, and any partnerships you are planning to leverage.
Remember to answer every part of every question!
RFPs can be very long and tedious, but any excuse to dismiss an applicant is usually enough to throw the proposal in the trash. Don’t risk this. Don’t worry about fluffy language… get straight to the point. Feel free to leverage content from previous proposals, as often the same questions are asked in RFPs.
Submit your proposal and be confident you will win. If not, you move on. There are plenty of other grant opportunities out there… see the previous section…
The grant-writing process
If you’ve been following all the steps outlined in this guide, the actual grant-writing process will be the least stressful part. You’ve already got the foundation for sustained excellence engrained in your organization. Now just wrap the bow around your mission and earn the grant dollars that you know you deserve!
In an ever-changing technological and financial landscape, it is sometimes hard to dedicate the time and effort to staying on top of what works and what doesn’t in this space.
Use the tools outlined in this guide to help your organization maximize its fundraising potential. Share your successes and lessons learned with us as we would love to incorporate them into updated material for others to use.
Nonprofit fundraising doesn’t have to be difficult, and hopefully this guide provides a good basis for crafting your strategy and executing on it for years to come!