Nonprofits typically rely on a combination of funding sources to carry out their missions, and rarely is it an even split. Some organizations place more emphasis on individual donors, while others focus on grants, fees for services, or bequests to provide the bulk of their budgets.
We frequently see development shops out of balance, relying too heavily on a single program. They may be overly focused on event-based fundraising or perhaps spending too much time on a troublesome major gift donor. Staffing troubles can often throw off the balance, but no matter how it happens, being dependent on a single source of funding results in lost opportunities with donors and greater financial uncertainty for the entire organization.
While there is no perfect formula, a healthy mix of funding sources — also known as revenue streams – provides nonprofit organizations with flexibility, autonomy, and increased income potential.
The Research on Diversifying Revenue Streams for Nonprofits
In a 2019 article, researchers ChiaKo Hung and Mark Hager analyzed 40 studies to understand the impact of revenue diversification on the financial health of nonprofits. The authors mostly affirmed the pro-diversification stance, concluding that multiple revenue streams produce healthier financial capacity and sustainability for the majority of organizations.
However, the benefits did not come without strings attached. Nonprofits pursuing diverse revenue streams face increased complexity and risk, increased administrative costs, the crowding out of private donations, and mission drift, according to the report.
The research makes it clear that if your nonprofit is seeking to diversify revenue streams, prioritization and planning are key. New technology and financial instruments are creating additional opportunities for nonprofits to diversify their revenue streams. So how do you know where to get started?
Here are some of the big fundraising trends that grew even bigger in 2021. These trends offer you a starting point on your path to grow your development operations.
With record levels of donations in 2021, the momentum around GivingTuesday is still growing a decade after it began.
The GivingTuesday Data Commons published the following figures from last year:
- An estimated 35 million adults participated in GivingTuesday 2021 in the United States alone, a 6 percent increase over 2020.
- Donations in the US totaled $2.7 billion, representing a 9 percent increase compared to 2020 and a 37 percent increase since 2019.
As a well-established philanthropic event, nonprofits that choose to sit out GivingTuesday risk losing opportunities to engage online donors. Even if your nonprofit has never participated before, it isn’t too late to get started.
Second, Donor-Advised Funds
The explosive growth of donor-advised funds is showing no signs of slowing down anytime soon. According to a report from the National Philanthropic Trust analyzing data from 2020, DAFs grew for the eleventh consecutive year across all key metrics.
Some highlights from the report include the following:
- Grants to qualified nonprofits from DAFs totaled an estimated $34.67 billion in 2020 – a 27 percent jump and the largest increase in a decade.
- The DAF payout rate was one of the highest ever recorded, at 23.8 percent. Payout never dipped below 20 percent since NPT began recording the data, reflecting a consistent stream of support from DAFs.
Third, Crypto Philanthropy
Cryptocurrency, such as Bitcoin and Ethereum, can no longer be considered a financial fad. Now nonprofits are getting in on the action, accepting donations of cryptocurrency and giving donors even more flexibility in their giving.
We’ve partnered with the cryptocurrency donation platform The Giving Block to help nonprofits get started with crypto philanthropy. Their data offers some key insights on crypto donors:
- $11,000 is the average crypto donation size on The Giving Block.
- This is nearly 100 times higher than the average online donation across the sector ($128).
- 45 percent of crypto users donate at least $1,000 to charity each year.
The Giving Block’s #CryptoGivingTuesday campaign broke records last year, raising $2.4 million in digital assets – a 583 percent increase from 2020.
Some development leaders will jump at these opportunities, eager to become early adopters and trailblazers. Others claim these trends are just “the latest shiny products” and distract from well-established best practices.
No matter your stance, the adoption of which revenue streams to pursue should be driven by the maturity of your development shop, frontline staff training, and risk management.