How do nonprofits make money to cover operating costs and extend the impact of their core mission? This article will shed light on 10 different ways.
Explore 10 proven strategies to diversify your revenue streams and ensure your mission thrives in 2024. From maximizing individual donations to exploring earned income opportunities, you'll gain practical insights to implement right away.
Get ready to take control of your nonprofit's financial future and make a lasting impact on the lives you serve.
How Do Nonprofits Make Money: 10 Ways to Raise Funds in 2024
- Fundraising Events
- Individual Donations
- Corporate Donations
- Nonprofit Grants
- Earned Income
- Corporate Sponsorships and Partnerships
- Membership Programs
- Selling Merchandise and Products
- Investments
- Publicity
1. Fundraising Events
When it comes to raising funds for nonprofit organizations, one of the most popular and effective methods that often comes to mind is hosting fundraising events.
These events provide an engaging platform to spread awareness about your cause and a fantastic opportunity to connect with your community and generate much-needed funds.
Some of the key benefits of hosting fundraising events include:
- Generating revenue through ticket sales.
- Collecting additional donations during the ticketing process.
- Selling food, merchandise, or other items during the event.
- Facilitating in-person donations at the event venue.
- Hosting a raffle on the day of your event.
Organizing an event that aligns with the interests and preferences of your target supporters is more likely to drive higher levels of engagement and, consequently, increased donations.
How to Host a Successful Fundraising Event
To ensure a successful fundraising event, it's crucial to consider the following factors:
- Establish clear goals: Determine the amount of funds you aim to raise.
- Set a realistic budget: Allocate resources for organizing and executing the event.
- Understand your supporters: Tailor the event to appeal to your target audience's preferences.
- Identify donor types: Cater to the specific categories of donors you wish to attract (e.g., mid-tier, major, or small-level).
- Assess available resources: Evaluate the resources at your disposal to support the event's needs.
- Recruit volunteers: Determine the number of additional volunteers required for a smooth execution.
By carefully considering these factors, you can make an informed decision about the type of event best suited to meet your fundraising objectives while aligning with your supporters' interests.
You have the flexibility to host events on a quarterly, annual, or one-time basis, depending on your organization's needs and the nature of the event itself.
2. Individual Donations
When it comes to how nonprofits make money, individual donations are the most common and crucial source of revenue. These contributions come from individuals who support your organization’s mission.
Your donors fall into several categories, ranging from general supporters to major givers and mid-tier donors. Some types of individual donations include:
- Donations: These come from nonprofits' online donation pages and in-person donations.
- Event donations: Donations that come from events organized by nonprofits.
- In-kind contributions: These are physical gifts, such as food, clothing, medical supplies, or anything other than money. NPOs must record their value as donations in their accounting systems.
- Stocks: Some individual donors offer stock holdings rather than direct funds or physical items.
- Planned gifts: These are larger donations promised to charitable organizations and paid at a later date. They are often received through wills and trusts after the donor passes away.
Nonprofits should dedicate ample time and effort to building a strong base of individual donors. This increases visibility as your donors spread awareness about your mission within their networks, leading to greater outreach.
Having numerous individual donors diversifies your funding sources. Once you've secured their trust and loyalty, you can encourage them to make recurring donations, providing a steady stream of funds.
To effectively attract and retain individual donors, nonprofits should:
- Implement a robust donor stewardship program to cultivate lasting relationships.
- Craft personalized appeals that resonate with each donor's interests and motivations.
- Demonstrate the tangible impact their contributions have on your mission.
- Show appreciation through thoughtful gestures, such as thank-you gifts or surprise rewards.
- Maintain regular communication through channels like email newsletters to keep donors engaged and informed.
By prioritizing donor stewardship, personalization, impact reporting, and consistent communication, you can build a loyal base of individual donors who feel valued and connected to your cause.
3. Corporate Donations
Corporate donations are financial contributions from businesses for charitable or philanthropic purposes. They can take several forms, including, but not limited to, in-kind donations of goods or services, cash donations, or grants to fund initiatives.
These can also take the form of matching gift programs, a type of giving program in which companies match their employee donations to charitable organizations up to a certain amount, doubling their donations.
Companies secure a tax benefit for donating to 501(c)(3) nonprofit organizations. They can contribute up to 25% of their taxable income to the nonprofit's mission. The best part is that any small or big business can get tax benefits from giving money to charity.
4. Nonprofit Grants
Nonprofit grants are another excellent way for nonprofits to raise money. Other organizations provide these to help achieve specific charity goals. You will find grants for all types of nonprofit organizations, including animal welfare organizations, after-school programs, culture centers, and environmental nonprofits.
Here are some types of grants available for charitable organizations:
Government Grants
These grants come from federal, state, or local sources. They often support initiatives that align with government priorities, such as education, healthcare, social service, and community development.
Government grants can also cover expenses related to infrastructure development, organizing youth mission group trips, and more.
Public Charity Grants
These come from other larger organizations whose beliefs align with your mission. They help nonprofits connect with potential supporters. They are good for charity organizations that create programs and initiatives to support local community development.
Independent and Family Foundation Grants
These are grants provided by private foundations established by individuals or families. Family or private foundations grant supports a wide range of causes, such as health, education, and the arts. Building relationships with family foundations can also be useful in securing consistent funding.
Corporate Foundation Grants
This is financial help that organizations can seek from foundations established by corporations. Such grants usually fund programs and projects that align with the company’s values and interests.
When corporations donate stock or other assets to nonprofits, the tax deduction can be based on the asset's fair market value (FMV) at the time of the donation.
Nonprofits must understand the 'fair market' principles to accurately report these donations, ensuring compliance and maximizing the financial benefits of such contributions.
5. Earned Income
Earned income refers to self-generated revenue that helps cover operating expenses. It's a great way to access a steady stream of income while furthering your cause.
Earned income must directly contribute to the nonprofit's mission to secure its tax-exempt status.
Some common examples of include:
- Selling tickets to activities and programs relevant to the mission
- Holding community classes and charging service fees
- Renting venues
6. Corporate Sponsorships and Partnerships
Another way for nonprofits to raise money is by establishing corporate sponsorships and partnerships with other NPOs or for-profit businesses. This offers a classic win-win situation: You get money while your partnered business receives brand exposure.
By adding them as sponsors to your event, the corporation will gain goodwill in the community. In exchange, they will provide support to extend the impact of your mission.
The three major types of sponsorships to seek out are:
Financial Sponsorships
The most common type of sponsorship is when a company directly donates money to support your program or event. The amount of money you'll get will depend on the sponsorship or exposure your organization provides.
In-Kind Sponsorships
In-kind sponsorships involve a company offering goods or services, like a gift basket or catering service, during the event. Determine what kind of items or services you need and ensure you highlight the sponsors during the event.
Media Sponsorships
Work with local media, such as print, radio, and TV, to promote your event and spread the word quickly. While you secure event exposure, the media business will be seen positively and boost its reputation.
7. Membership Programs
Membership programs are another great funding source for sustainable growth. Many nonprofits have one in place to build a reliable and loyal base of supporters who, in return, secure more perks and bonuses from your organization. These include tickets for exclusive events, access to charitable programs, or other opportunities.
With an active and supportive group of registered members, you have money handy, as membership dues are paid regularly.
A membership program can also attract donations from other sources. Loyal members are willing to donate consistently to your nonprofit, and they can also help grow it and recruit new members.
Here are some things to keep in mind when it comes to membership programs:
Membership Tiers
Consider offering memberships with different tiers, each offering benefits and privileges to inspire more people to sign up. This can start with access to a members-only newsletter or a digital or printed thank you card, then increase to exclusive merch and VIP event passes.
Membership Perks
Nobody will join your program unless you’re giving something of value or exclusive. For instance, if you’re hosting an event, offer members the option to register for events early and reserve seats.
You can reach out to your sponsors and see if they’d be open to the idea of providing a membership discount program on their products and services.
Membership Fees
You’ll have to set the right price for your membership fees; otherwise, people won’t sign up. Consider the end goal of your membership revenue, the benefits offered, and the number of people you want to join. Set a fee that’s profitable for your organization and reasonable for your supporters.
Zeffy’s 100% free nonprofit membership software makes managing your memberships a breeze. You can create customizable membership forms, set several tiers, offer automatic membership renewals, and more.
8. Merchandise and Products
Nonprofits also see a boost in income by selling merchandise and products that support their mission. There are several ways to start selling, from opening an online store to a second-hand charity shop.
Supporters who want to represent your nonprofit in public will be willing to buy branded merchandise.
Many nonprofits with an in-person presence, like a museum, sell these goods in their gift shops. Those like churches or religious institutions sell merchandise, food, and drinks at events.
These events include family game nights, movie nights, talent shows, and more, which can also bring in more funds. You can seek help from sponsors and partners to cover the costs of procuring items.
Nonprofits can leverage digital tools to diversify their revenue streams. With Zeffy, organizations can easily set up and manage an online store completely free of charge, enabling you to sell products to supporters. This not only generates funds but also raises awareness for the cause.
Zeffy's 100% free POS - tap-to-pay- allows nonprofits to seamlessly accept contactless payments for goods sold at fundraising events or physical locations.
By embracing e-commerce and mobile payment solutions, nonprofits can unlock new avenues for engaging their community, fostering supporter loyalty, and driving consistent income to sustain their vital missions.
9. Investments
If you're looking for ways for nonprofits to make money, a lesser-known way is by investing. It is a great source of revenue for nonprofits but might not be as quick as other sources like individual donations or fundraising. Like an individual investor, nonprofits can open a brokerage account and invest in stocks, bonds, or other securities to generate income.
Their tax-exempt status means they might not have to pay the income tax on portfolio gains and dividends. By investing, nonprofits can earn more, build assets, and increase long-term savings.
Here are some sources where nonprofits can invest:
- An endowment is a fund invested to generate income for an organization's programs or operations. It is typically built through donations and may have specific restrictions on how the income can be used.
- Reserve funds are set aside for emergencies or unexpected expenses. They may be invested to secure the organization in case of unforeseen events.
- Most nonprofits can invest in stocks to generate revenue for their business. To avoid violating US Securities and Exchange Commission (SEC) and IRS regulations, your investment should not benefit nonprofit board members or employees.
10. Publicity
Even for charitable organizations, advertising is necessary to expand the reach and awareness that will ultimately help to raise money. Although advertising campaigns need an early investment, they usually have a higher ROI for nonprofit organizations.
Platforms like Google offer charities monetary help to grow visibility around their cause. Google offers Google Ad Grants that equips nonprofits with up to $10,000 per month of free search for advertising. The Facebook Community Fund extends support to organizations aligned with community building in certain US regions.
How Nonprofits Can Make Money with Zeffy
Maximizing fundraising revenue is crucial for nonprofits to sustain and expand their impact.
With Zeffy's 100% free fundraising platform, organizations can significantly boost their income without incurring any platform or transaction fees.
Zeffy empowers nonprofits to create customizable donation forms, manage donor relationships, and sell event tickets at no cost. Every dollar raised by your organization goes directly toward your cause.
With Zeffy's user-friendly tools and cost-effective approach, nonprofits can allocate more resources toward their core programs, ultimately enabling them to make a greater difference in the communities they serve.
FAQs on How Nonprofits Make Money
1. Do nonprofits actually make a profit?
Yes, nonprofits are allowed to, and they sometimes make a profit. Yet, the profit is exempt from taxes only when it comes from related activities.
- Related activities align with a nonprofit's stated mission and purpose. For instance, consider a charity whose mission is to sell books and help educate the poor. The money made here is acceptable because it supports the nonprofit's goals.
- Unrelated activities refer to when a nonprofit organization conducts business beyond the scope of its purpose. For instance, a public charity organization is running a café. This kind of income is tricky and might not be tax deductible.
It's also important to note what they're allowed to do with this profit. Nonprofit organizations, unlike for-profit ones, cannot distribute their profits to individuals.
NPOs must invest all their surplus funds back into the organization. This is because tax-exempt nonprofit organizations benefit the public and do not support private interests.
2. How does a CEO of a nonprofit get paid?
The board of directors of a nonprofit handles hiring and establishing reasonable and not excessive compensation (benefits and salary) for the CEO or executive director. This compensation must be enough to attract and keep the best talent to lead the charitable organization.
Nonprofit boards determine the appropriate compensation by reviewing the CEO's compensation, which includes comparing executives' compensation in similar-sized organizations with similar missions and budgets and in the exact geographic location.
3. How much should a nonprofit spend on salaries?
There is no ideal cap on how much nonprofits should spend on salaries. This is because nonprofit salaries will vary from organization to organization, depending on its location, size, type, employee experience, and responsibilities.
The Better Business Bureau's Charity Accountability Standards mention that NPOs must spend at least 65% of their operating budget on program expenses. Of this 65%, 75% to 90% should be allocated to paying employees.
4. Can you use nonprofit grants to cover payroll expenses?
Yes, nonprofits can use grants to cover payroll expenses as long as the staff members work on projects related to the grant.
Employees whose wages are covered by grants will be required to track their work to ensure their activities and hours qualify for grant dollars. Consider using online software to make it easier for employees to track their work.
