To Grow Bigger, Charities Need to Go Deep—Not Wide—in Fund Raising

Few nonprofit leaders take their jobs because they are passionate about raising money. But for too many executives, failure to understand how fund raising works is a key reason they can’t accomplish the missions that motivated them to work for a good cause.

Unfortunately, figuring out how to garner resources to solve a social problem is just as complex as devising the solution.

Some people believe that successful fund raising is mainly a matter of luck—finding the right board member or the right new government program.

Others believe that no matter what the track record, if they can just find the right words to make a better case for support, the public will understand the need for their work and tremendous resources will flow.

Neither extreme is true. It’s not just luck, but not every cause can attract money from every source of support.

In a study of 144 big nonprofits founded since 1970, for example, we learned that the vast majority grew not by diversifying their sources of support but by raising most of their money from a single type of donor (such as corporations or government) that was a natural match for their mission.

Moreover, they created organizations that were specifically designed to work with that type of donor, since governments need different types of reporting and accounting than does a wealthy philanthropist.

In fact, thinking about what approach to adopt goes beyond such simple categorizations; in our research of large charities, we identified 10 financing approaches (PDF) that such groups use to support their operations. For example, groups that have a broad appeal, like Susan G. Komen for the Cure, might rely primarily on individuals and direct-marketing appeals.

Meanwhile, a nonprofit like Youth Villages might rely primarily on government agencies interested in financing innovative approaches to social services.

And a food bank or international aid charity might rely heavily on corporations to donate groceries, medicine, and other items.

But how does a nonprofit leader decide what approach to financing its operations makes the most sense? Building on years of primary research and consulting experience with dozens of nonprofits, here are guidelines to consider.

Get a sense of where you are. The way forward starts with a look back. An organization needs to reflect on the relative strengths and weaknesses of its current and historical approach to attracting support. For some, the basic assumptions are a misreading of the organization’s history.

Consider the experience of an education nonprofit we studied. It believed that offering potential donors tours of its clinics to diagnose learning disabilities was the best way to persuade people to give. The leadership team was so convinced of the power of site visits that it spent a disproportionate amount of time arranging tours. And it planned to build more clinics, in part, to enhance its ability to raise money.

However, when the group examined the share of total donations that came from people who had visited the clinics, it learned that it was a startlingly low percentage. The organization then abandoned its plans to build more clinics and turned to other ways to raise money.

To examine donation patterns, organizations should look at sources of revenue for the past five years and get a sense of how reliable each one is. What’s more, they should think about what motivated donors to give because that can help predict future giving. The organization must also understand its own capabilities: That provides a starting point to figure out what investments may be necessary to adopt a fund-raising approach that builds on strengths and navigates weaknesses.

Take inspiration from your peers. We’ve seen many nonprofit leaders resist this advice, reasoning that their organization is unique and thus requires a unique approach to raising money.

While creating a never-seen-before way to seek donations is possible, the truth is that doing so is generally far more difficult and less certain.

Organizations that you may want to study can be similar in terms of mission (such as disease eradication) and revenue size.

But if growth is a goal, the approaches used by organizations of the nonprofit’s target size will probably be more informative.

Other groups to examine are those that focus on different causes but cultivate the same type of support or those that serve similar beneficiaries or geography.

Key areas to review are overall sources of support (how many discrete sources the organization taps, what those sources are, and what tactics it uses to cultivate them) and the differences in programs, governance, and finance.

Weigh revenue potential against associated costs. Examine total dollars awarded annually through each source the nonprofit wants to go after and the level of competition for those funds.

Obtaining those funds, of course, comes at a cost. When a nonprofit commits to seeking out a certain type of donor, it commits to investments that can be significant and risky, depending on how difficult it is to obtain a certain kind of gift or grant or contract. Investment in four areas may be required: programs, personnel, information-technology systems, and communications.

Pave the road. New fund-raising approaches typically require two to three years to take hold. A good plan will give staff and board members a shared vision of where the organization is heading. It also will establish clear milestones, making it easier to track progress and make course corrections. When developing a new source of support, a nonprofit should not relinquish donors that don’t fit with the new approach.

These proven secondary sources may go a long way toward complementing the primary new source of money and serve as a stabilizer to the ups and downs of the new source. For example, while Susan G. Komen for the Cure derives the bulk of its revenue from small gifts raised through its athletic races, corporate sponsorships constitute an important secondary source.

Developing an approach to seeking money is a long-term investment that requires patience, but it’s an investment that’s well worth making.

Instead of seeing every possibility as a good lead for donations, savvy nonprofit leaders take a methodical approach to assessing each opportunity.

Instead of wondering how to invest in fund-raising capabilities (and generally investing too little in too many), nonprofit leaders should set a careful strategy upon which to build.

Brett Jenks, CEO of Rare, an environmental group that is adopting a new financing approach that will allow it to expand to many more countries, recently reflected on his journey: “Picking a sensible revenue model was one of the most liberating and clarifying things we’ve done to date. I empathize with leaders who constantly wonder (or are constantly asked), Why not membership? What about online giving? How about government grants or fee for service? Taking ‘maybe’ out of the process has already boosted our bottom line.”