Grants Are Great. Don’t Make Them Your Whole Fundraising Strategy

Let’s start with something we all know, even if we don’t always act on it: a healthy fundraising strategy gives an organization enough breathing room to keep the lights on, plan ahead, and weather a few surprises.

That’s really hard to keep in mind when everyone is focused on the annual revenue goal sitting at the top of the spreadsheet. Say you need another $500,000 this year. The question comes pretty naturally: so where can we find $500,000? A promising grant opportunity appears, someone starts working on the application, and before you know it, everything is right in the universe again.

We hate to break it to you, but there’s actually a lot more to consider here. Once you start looking at the money itself, it really matters where it comes from. So does how predictable it is, what you can spend it on, how much work goes into securing it, and what happens when that particular funding source goes away.

This is where nonprofit revenue diversification is essential. Every organization will have a different mix of funding, and grants can play an important role in that mix. What you need to know as a fundraiser is whether the current mix gives your organization enough room to adapt when something changes.

Grants can become a little too comfortable

Grants are appealing for the obvious reasons. One successful proposal can bring in a substantial amount of money, and after months of uncertainty around meeting revenue goals, it can really feel like a welcome break from building an individual giving program one donor at a time.

But what happens when a foundation changes its priorities? Or when a government contract doesn’t renew? These bombshells can come with little to no warning, and you never want to feel like your organization is treading water to survive.

Restricted funding creates another wrinkle. Your organization might have a healthy revenue number on paper while having very little money available for the expenses that sit outside a grant agreement.

A heavily grant-funded organization can find itself with a financial structure that looks stronger from a distance than it is in practice.

Diversification needs to fit the organization

A useful revenue strategy starts with the organization you have. A small community nonprofit with a strong base of individual supporters will have different opportunities than a large institution with a sophisticated grants program. An organization with an established earned-revenue model may have more room to grow there than through events or corporate sponsorships.

Think about what each revenue source asks of your team and what it contributes to the organization. A funding source that requires extensive staff time, produces highly restricted revenue, and needs to be renewed every year may play a very different role from a broad base of recurring individual donors.

Start with your current revenue

Before adding another fundraising initiative to the calendar, start with what you already have. Pull the last three years of revenue and sort it by source. Depending on your organization, that might include:

• Foundation grants
• Government grants and contracts
• Individual giving
• Major gifts
• Corporate giving and sponsorships
• Events
• Earned revenue
• Planned gifts
• Other contributed misc. revenue

Spend some time looking underneath those numbers, and ask yourself the following:

1. How predictable is each source?

   For example, a donor who has given every month for five years creates a different kind of stability than a grant that needs to be renewed next year.

2. How much flexibility does the funding provide?
   
   If most of your revenue comes with restrictions attached, how much unrestricted money is available for general operations, staffing, technology, or an unexpected need?
   
   
3. Where is your revenue concentrated?
   
   Look at your largest funders and calculate what percentage of your total revenue they represent. A single large funder may be completely appropriate for your organization, but it is worth knowing how much financial weight that relationship carries.
4. What does each revenue source require from staff?

   Consider the hours spent prospecting, applying, cultivating, reporting, stewarding, renewing, and managing each source. The dollar amount alone won’t tell you the whole story.

Try this revenue diversification check

This is an exercise you can bring to a development or leadership meeting without needing a finance degree or a twelve-tab spreadsheet.

For each major revenue source, fill in the following:

The percentages will tell you where your money comes from. The other columns will help explain what that money means for the organization.

Imagine that grants account for 60 percent of your revenue. That number alone doesn’t tell you whether your funding model is healthy. You’d want to know how many funders make up that 60 percent, how much of the funding is restricted, how predictable renewals have been, and how much staff capacity goes into maintaining those relationships.

The same exercise can reveal opportunities on the other side of the equation. Maybe you have hundreds of individual donors who have received little attention beyond annual appeals. Maybe your major gift prospects have never been systematically qualified. Maybe your corporate relationships are strong but concentrated in one company.

Those details give you somewhere to start and evaluate the health of your program, and ideally expose some opportunities.

Revenue diversification is the long-game

A common problem with diversification is timing. Organizations often start thinking about it when a major funding source is already in trouble, when it really should be more of a proactive approach.

That makes the timing of your investment important. If grants are currently performing well, you have some breathing room to strengthen another area of fundraising while things are stable.

Maybe your organization starts paying more attention to recurring donors, and building a robust monthly giving program. Maybe you create a more intentional major gift pipeline. Perhaps you spend the next year improving your case for support and identifying the people who already have a strong connection to your work.

The work will look different from organization to organization. The important part is giving new revenue sources enough time to develop before you need them.

Where should you start? 

Again, start with the numbers you already have. Look at several years of revenue. Identify your largest funding sources. Calculate how much of the budget depends on your biggest funders. Separate restricted and unrestricted revenue. Then look at the staff time attached to each source.

Once you have that picture, choose one area to strengthen. After all, Rome wasn’t built in a day.

It’s repetitive, but it’s important – the goal here is a funding mix that gives the organization enough stability to plan ahead and enough flexibility to respond when circumstances change. Grants can of course be a big part of that picture. They can fund important work, support growth, and bring valuable relationships into an organization. Just make sure your fundraising strategy has somewhere else to turn when the grant cycle changes.

A useful question for your next development meeting: If one of your three largest funders told you tomorrow that they would not renew, what would happen to your budget?

The answer will tell you quite a bit about where your fundraising strategy has room to grow.

If that three-year revenue review raises a few questions for your team, Windmill Hill Consulting can help you make sense of the numbers and figure out where to focus next.