Learning from peers to refine your nonprofit funding strategy

If you work at a nonprofit, you already know the importance of developing a strategy for financial sustainability. But where should you start? A useful early step is to look at what peer organizations are doing. Benchmarking against peers can help you refine your assumptions about what being financially sustainable could look like—or develop entirely new assumptions. It can help you decide on the revenue categories you’ll focus on, the likely mix of revenue from those categories, and the capabilities required to raise that revenue.  

In this article, we’ll outline a three-step process adapted from our report Finding Your Funding Strategy: Benchmarking 101, tailored to U.S.-based nonprofits.  

Define your funding strategy peer set 

First, identify five to 15 organizations that resemble yours in mission, size, and geographic scope. Also consider organizations with slightly larger revenues, which can offer insights into what your funding model might look like, should your organization grow.  

Identifying a peer set is often as simple as reviewing organizations you already know or using connections and networks within your field. If that’s not enough to fill out your list, or if you don’t have contacts in those organizations, here are some ways to surface more names: scan recent conference attendee lists, look into members of coalitions your organization belongs to, or ask board members if they have connections at organizations that fit the bill.  

Once you’ve identified peer organizations of similar size and mission, you can determine which organizations’ revenue mixes to research. 

Research funding strategies 

Researching your peer organizations’ funding strategies involves checking out public financial sources and, ideally, talking directly with those peers to get more details. Let’s consider the different revenue sources nonprofits typically get their funding from. These include categories like grants, donations from individuals, support from companies, and earned income from services or products. Based on Bridgespan’s experience and research, here are the main revenue categories and what they include: 

• Governments: e.g., community block grants, insurance reimbursements, government grants, government contracts 

• Small gifts (under $10,000) from Individuals: e.g., donations, entry fees, individual membership fees, religious contributions, bequests 

• Program service fees: e.g., earned income; fees for transactions, consulting, conferences, network affiliate memberships, legal services; interest on business, home, student or other loans; private insurance reimbursements 

• High-net-worth individuals: e.g., major gifts, pledges, planned giving 

• Corporations: e.g., corporate membership fees; in-kind donations of food, media, supplies, transportation, consulting or legal services, hotel or airline miles, etc.; matching grants; sponsorships 

• Foundations: e.g., foundation grants, capital aggregator grants, major gifts, pledges 

• Investment income: e.g., investments, release of net assets  

Audited financial statements are often the most reliable source for information on organizations, readily available on platforms like ProPublica Nonprofit Explorer and Candid’s GuideStar Pro Plus or on the nonprofits’ own websites. Annual reports can provide valuable insights. And IRS Form 990s, which list revenue by categories, may also be helpful—though sometimes the categories are too broad to allow you to really understand where the money is coming from. 

It helps to analyze both the most recent year’s revenue mix and data from previous years. Looking back five years can reveal changes in revenue patterns. This historical analysis is valuable but time-intensive, so you might focus on a few organizations with similarities that are of particular interest. 

Next, consider speaking directly with peers, because it’s often difficult to understand their revenue mixes and related assets and capabilities with just online sleuthing. To be sure, in a competitive funding landscape, peers may be reticent to share. Executives at organizations in geographic locations or subsectors different from yours may be more forthcoming.  

Be prepared to ask—and answer for your organization—questions like: What is your revenue mix? How did you arrive at that mix? What are the capabilities and assets that helped raise funds from your largest revenue sources? What are your expenses for the work? How does being funded by these sources affect your organization and mission? Does this revenue mix feel sustainable? 

Share what you’ve learned with stakeholders 

Once you’ve researched and analyzed your peer organizations’ revenue mixes, it’s time to translate these insights into a proposed funding strategy for your own organization. This means having a clear-eyed view of the organization’s ability to raise funds sustainably from its main funding sources.  

Each funding category has its advantages and disadvantages, and there are particular capabilities suited to each. Those capabilities can’t be built overnight, so you’ll need to share your findings and proposed funding strategy with key internal stakeholders—who are vital to implementing it. For example, a strategy focused on high-net-worth individuals requires not only a robust major gifts stewardship and solicitation program, but also engaging board members with connections to wealthy individuals and a commitment to fundraising.  

Some organizations also engage directly with current or potential funders to gather deeper insights into their proposed funding strategy. It’s a way to learn more about funders’ priorities, criteria, and experiences with similar organizations. This exchange can also validate the proposed funding strategy and help refine the organization’s approach to securing funding. 

By engaging in this benchmarking process, nonprofits can develop a hypothesis and discuss what their ideal funding strategy should be. Then you can take steps to build out implementation plans toward a sustainable funding strategy.  

Photo credit: Jakub Zerdzicki via Unsplash