If you want to get fundraising right and not backwards, then the first step toward doing so is to get the Five Components of Successful Fundraising clear in your mind. Do this stuff before you start planning your next gala or sending out a bunch of (unqualified) grant applications.
What are the Five Components of Successful Fundraising? They’re pretty straightforward. I’d even venture to say that you already know them. But you just might not have put them into the right order. It gets super complicated if you start at the “ending end” of the last and work backwards. Here’s the short list:
- Funding Types. There are only three.
- Funding Streams. There are only two of those, each of which is further subdivided.
- Management tools for Fundraising. This component is the one most often ignored, but it's so valuable!
- Capacity. This has to do with the amount of staff, time and money you’ll need to do fundraising, another area that's often ignored.
- Fundraising Strategies. This is the part people tend to focus on first, when as you can clearly see, it comes last.
Component 1: Funding Types: There are only three types of philanthropic (charitable) funding sources: individual donations, grants and corporate relations. Don’t overcomplicate this component. If the entity providing the income does not fall into one of these three categories, then the income is probably coming from sales of some kind, like fee-for-service contracts, retail operations and the like.
Individual donations come from individual donors. Individual donations range from the multi-million-dollar major gift down to the two-dollar impulse donation sent via text message. Many fundraising strategies produce individual donations, like events, on-line donations pages, auctions, direct mail, capital campaigns, major-gift campaigns, planned giving campaigns. Try not to confuse the Type with the Strategy.
Grants come from private foundations and government agencies. Grants tend to be larger in size (it’s rare to get a five-dollar grant, not rare to get a five-dollar gift). They also tend to require an application or proposal, and to come with strings attached, like being restricted to a specific use, having particular reporting requirements or something else.
Corporate gifts and sponsorships come from businesses, like you’d never guess. Businesses can give something as small as the price of a ticket to a gala, an exhibit booth at a conference, or a business-card ad in the newsletter; they can also give big, like sponsoring an entire program, underwriting a campaign, or being the title sponsor of a major event. A university we know got corporate sponsors to donate money for the privilege of naming classrooms in their new School of Business.
Nonprofits can also bring in income from another source, but that comes in the next component.
Component 2: Funding Streams. There are two types of funding streams: philanthropic funding and business funding. Most nonprofit executives concentrate on philanthropic funding. But business funding is starting to come into its own.
Philanthropic Funding produces gifts and grants, all of the three types described above. The giver expects nothing tangible in return, other than the satisfaction of doing good for others and maybe some recognition. The gifts and grants provide income that enables the charity to do its good work. Donors get personal satisfaction; businesses get corporate “goodness points,” and grant-makers achieve their own particular missions. Philanthropic giving means that the provider of the income expects somebody else to use the charity's programs and services.
Business Funding changes the rules. Business funding includes everything from fee-for-service contracts to the sale of logo-ware (t-shirts, action figures, the founder’s biography, etc.) to social enterprise where the charity sells certain goods and services that in and of themselves deliver a social benefit. A good example is that of Goodwill Industries, many of whose affiliates set up factories that sell services for making military uniforms or other like goods.
Component 3. Management Tools. Our Leaky Bucket Study shows that the majority of US-based nonprofits lack the tools for managing fundraising in a productive manner. Good management tools include the strategic plan, well-defined and realistic performance indicators, success measures, performance targets, criteria for qualifying donor/funder prospects, guidelines, policies and the like. If this stuff is not in place, the poor development team ends up re-inventing the wheel over and over. The CEO gets worried, and the board can get violent. You might want to read our Best Practices report Measure It to Manage It to learn how to prepare such critical management tools.
Component 4. Capacity Issues. To do the job right, you’ve got to have the right resources as well as the right amount of resources. Resources include people, technology and money. Try to cheat on any of these and you just won’t get the results you want. Fundraising is a professional skill and it’s time-consuming, so don’t assume you can significantly increase your income by asking the ED to work more hours. Technology for fundraising is widely available for virtually every price range (including free) and the efficiencies it produces are astonishing, so it’s a false economy to avoid investing in it. And it takes money to make money. Remember the cost of postage? Discourage your board or senior executives from asking for a huge increase in income, unless they can figure out a way to provide you with the right resources.
Component 5. Fundraising Strategies. In last place for a very good reason. There are dozens of strategies for raising money, each of which has hundreds of variations, and all of which are limited only by your creativity, time, manpower and budget. It’s extremely easy to put the cart before the horse and design the strategies first, but that’s a lose-lose proposition. The list of major fundraising strategies includes but is definitely not limited to these biggies: direct mail, Annual Appeal, on-line donations page; social-media appeals and contests; events, giving days, major gift programs, capital campaigns, planned giving programs, grants programs, corporate relations programs, retail-store operations, etc. etc.
Why This Stuff Is Important! OK, the whole point of this article is: do the first things first, and the last things last! Don’t jump into a strategy because somebody else did it, or even if you've done it before. Choose your fundraising strategies after you know which type of income you’re trying to raise, and after you know which funders are right for you. Consider the messages that appeal to various segments of your lists. Align fundraising strategies effectively with these considerations. Once you’ve got the right profiles, funding streatms, management tools, time, people, skills, technology and money in place to do the job well, then you can choose your fundraising strategies. Otherwise, there's too much at stake.