Prospect Research: Grants as Revenue Strategy

It’s commonly held wisdom— particularly among fundraising generalists — that nonprofit organizations shouldn’t rely exclusively on grants for their operational and programmatic support. Grants should be only one element in a multiple-source mix.

 

This post explores nonprofits’ revenue development strategies and their varied mixes of funding sources. Later posts will explore their options for seeking grants from private sources.

 

 

Revenue Strategies

 

Available statistics suggest that nonprofits — as a large population of organizations — apply this wisdom in practice. Generally, grants are in fact only one element in their funding mix — and often they form only a small part of that mix.

 

As the Congressional Research Service (CRS) noted in its Overview of the Nonprofit and Charitable Sector (2009) — “…It is important to note that nonprofit organizations that receive charitable contributions generally have other important sources of revenue, such as user fees, earnings from assets, or government support….” In its Overview, the CRS found that, as of 2005:

 

• Government grants and payments were much more important for health organizations (37%) and for human services organizations (36%) than for other types of organizations.
• Private donations formed the largest source of funding for arts, culture, and humanities organizations (43%) as well as for environment and animals (48%) organizations. They were also significant in human services organizations (16%).
• Private payments (fees for service) were most important for education (56%) and healthcare (56%) organizations, but also significant for human services organizations (41%), arts, culture, and humanities organizations (29%), and for environment and animals organizations (24%).
• Investment income was far more important for education organizations (17%) and arts, culture, and humanities organizations (9%) than for others (range: 3% to 7%).
• Other sources of revenue (e.g., special events) were most important for environment and animals organizations (9%) and for arts, culture, and humanities (7%) organizations.

 

In its Overview, the CRS reported that government grants were least important for health organizations and most important for human services and international organizations. The grants reflected the nature of the specific organizations, and were less important as a revenue source for those organizations — such as hospitals — that relied heavily upon government fees (e.g., Medicare and Medicaid). Grant support was more important in areas where the government had a special interest — such as the human services and international sectors — than in others.

 

Government Grants

Government funding to charitable organizations has three origins. It may come: (1) directly from the Federal government, (2) from state and local governments that have received the funding from the Federal government (rather than raised the revenue themselves), or (3) directly from state and local governments.

 

Among the findings of one CRS-cited study were that only 9% of grants originated with state and local governments; 61% were financed by the Federal government but flowed through to nonprofit organizations via state and local programs; and the remaining 30% were provided directly via the Federal government. While the Federal government appeared to be the primary source of funds through grant making, state and local governments were the primary sources of oversight.

 

This distribution of grant origins implies that what happens to future Federal discretionary spending will impact greatly — even disproportionately — those organizations that rely more heavily on grants in their funding strategy mix — particularly those human services organizations that depend upon Federal-origin grants and Federal-origin fees.

Prospect Research: Nonprofits’ Revenue Sources

As potential grant seekers, some types of charitable (or nonprofit) organizations in the United States of America are more likely than other types to need to compete head-on against their peers for public and private grants.

 

This post explores nonprofits’ revenue development strategies and their varied mixes of funding sources. Later posts will explore their funding mixes further, as well as their options for seeking grants.

 

Different Sources, Different Impacts

 

Different types of charitable organizations depend to varying degrees on different types of revenue sources. Those that focus on arts, culture, and humanities, environment, and animals rely most heavily upon private contributions. Such charities are more susceptible than others to economic turmoil that contributes to fluctuations in individual giving.

 

Compared to other types of charitable organizations, educational institutions rely more upon investment income. Their revenues are susceptible to volatility in financial markets that impacts their investment income. As recent economic history has demonstrated, market downturns affect those investments directly and adversely.

 

Charities that derive much of their revenue from private payments (e.g., fees for services) — such as health care and education institutions — are less likely than others to suffer revenue losses when external factors cause changes to the level of private contributions (donations).

 

Funding Mixes

 

In An Overview of the Nonprofit and Charitable Sector (2009), the Congressional Research Service (CRS) reports that for arts, culture, and humanities organizations, the revenue source mix is 12% government grants and payments, 29% private payments (fees), 9% investment income, 43% private contributions (donations), and 7% other revenue. See table ad infra.

 

For education organizations, the mix is 12% government grants and payments, 56% private payments (fees), 17% investment income, 13% private contributions (donations), and 2% other revenue.

 

The revenue source mix for environment and animals organizations is 12% government grants and payments, 24% private payments (fees), 7% investment income, 48% private contributions (donations), and 9% other revenue.

 

For healthcare organizations the mix is 37% government grants and payments, 56% private payments (fees), 3% investment income, 2% private contributions (donations), and 2% other revenue.

 

Finally, for human services organizations, the mix is 36% government grants and payments, 41% private payments (fees), 3% investment income, 16% private contributions (donations), and 4% other revenue.

 

 

Later posts will explore nonprofits’ funding mixes and their consequences, as well as their options for obtaining grants from private grant makers.

Are Grants Worth the Effort?

I’ve been a Grant Writer since before laptop computers hit store shelves, and a Grant Writing Consultant for nearly as long. Along the way, grant seekers often have asked me whether grants are worth all the effort that it takes to find, win, and keep them.

 

 

Among the questions that they have asked — and answers I’ve given — are:

 

Return on Investment

 

Q: Is pursuing this grant going to be worth our investment in time, energy, funds, and resources?

 

A: In general, the larger the potential grant award, and the stronger an applicant’s organizational commitment to its pursuit, the more likely an applicant will find its investment in that pursuit to have been worthwhile.

 

Revenue Strategies

 

Q: Is a grant the best way to go in getting the funding we need for this?

 

A: If a grant is going to distort an applicant’s mission, vision, or goals, an applicant should not seek that particular grant. If an applicant needs unrestricted funds, it should avoid funders that restrict uses of funds to those detailed in a funded grant application. In all cases an applicant should adopt and execute a diversified revenue strategy so that it does not depend on repeated success in winning grants as its exclusive source of funding.

 

Likelihood of Funding

 

Q: How likely is it that we will be funded?

 

A: An applicant is always more likely to be funded if it applies than if it does not apply, but it is certainly not always in its best interest to chase a particular grant. In cases where a funder indicates that it will award fewer than ten grants in a competition, it is a clear signal to applicants that only the most well-positioned and committed organizations should bother to apply.

 

Restricted Funding

 

Q: Will this grant award need to be treated as restricted funding or will we be able to add it to general revenues?

 

A: State and federal grant awards are generally restricted funds and must be expended in ways delineated in an applicant’s funded proposal. The same expenditures also must be consistent with Office of Management and Budget (OMB) circulars and other regulations. Foundation grants may not be quite so restricted if they are awarded for general support or similarly flexible purposes.

 

Available Funding

 

Q: How much funding can we request in this grant proposal?

 

A: Astate or federal funder often indicates a minimum and maximum grant award in its Notice of Funding Availability (NOFA). It also often indicates an expected average award. Prospect research using 990-PFs and other tools usually indicate grant award averages and ranges for foundations. Prudent applicants budget accordingly.

 

Funding Requests

 

Q: How much funding should we request in this grant proposal?

 

A: An applicant should ask for no more than it needs to accomplish its proposed goals and objectives. It should not pad its proposed budget. In no case should it ask more than the maximums discoverable through meticulous foundation prospect research or careful review of each NOFA.

 

Supplemental Funding

 

Q: Can we ask for a grant to support an existing program or initiative?

 

A: State and federal grant programs generally are intended to build an applicant’s capacity (to do what it proposes to do in its grant application) through a short-term infusion of external funding. Such programs caution that such funding must be used to supplement existing local commitments, not supplant them. Foundations are far more variable in their willingness to allow their funds to support an existing program or initiative rather than supplement it in some way.

 

Among questions that I have not been asked so far, but for which I’d offer answers are:

 

Q: Should we only seek a grant from a funder with which we already have an established relationship and track record?

 

A: Applicants should seek grants from funders whose purposes and priorities closely resemble their own — or they should not bother to apply. The closeness of fit in selecting funding options is independent of prior contact with a funder or having obtained prior funding from it.

 

Q: Do we expect the outcomes, if we are funded, to be worthwhile?

 

A: If the applicant itself does not expect that its anticipated outcomes will be worthwhile, if achieved, it is unlikely that funders will be persuaded otherwise.

Prospect Research: Community Foundation Giving

Community foundations are one of four primary types of foundation, the others being independent, corporate, and operating. Concentrated in ten states, they account for about 1% of all foundations and for about 9% of total annual foundation giving. In recent years, the ratio of community foundations that have expected to increase their giving in a subsequent calendar year has varied from 17% to 64%, while the rest have expected either no change in giving or a decrease.

 

 

This post uses Foundation Center data, published in its annual “Key Facts on Community Foundations” series, to explore philanthropic trends among community foundations. Its context is the United States of America during the period 2006-10.

 

Total Numbers

 

From 2006 to 2010, the total number of foundations increased by 4,133 (or 5.7%) from 72,477 to 76,610. Over the same period, the total number of community foundations increased by 17 (or 2.4%) from 717 to 734. Their share of all foundations remained under 1% throughout the period.

 

Year	Community Foundations		All Foundations
	Number	Percent (%) of Total Number	Total Number
2006	717	Less than 1%	72,477
2007	717	Less than 1%	75,187
2008	709	Less than 1%	75,595
2009	737	Less than 1%	76,545
2010	734	Less than 1%	76,610

 

In 2006, eight states had 20 or more community foundations: California (CA), Florida (FL), Indiana (IN), Michigan (MI), Ohio (OH), Pennsylvania (PA), Texas (TX), and Wisconsin (WI). Iowa (IA) in 2007 became the 9^th state on this list, and New York (NY) became the 10^th state on it in 2008. Washington State (WA) became the 11^th state on the list in 2009, but it left the same list in 2010.

 

Share of Giving

 

Each year during 2006 to 2010, community foundation giving, as a share of total foundation giving, remained at between 9% and 10%. After rising from 9% in 2006 to 10% in both 2007 and 2008, it fell back to 9.1% in 2009 and moved to 9.2% in 2010.

 

Giving by Type

 

During 2006-10, annual giving by community foundations increased from $3.6 billion to $4.2 billion (and has been estimated at $4.2 billion again for 2011). Total foundation giving increased from $39 billion to $45.9 billion over the same five-year period.

 

	Annual Giving by Type of Foundation
Year	Independent	Community	Operating	Corporate	Total
2006	$27.5 billion	$3.6 billion	$3.9 billion	$4.1 billion	$39.0 billion
2007	$32.2 billion	$4.3 billion	$3.4 billion	$4.4 billion	$44.4 billion
2008	$33.8 billion	$4.5 billion	$3.9 billion	$4.6 billion	$46.8 billion
2009	$32.8 billion	$4.2 billion	$4.2 billion	$4.7 billion	$45.8 billion
2010	$32.5 billion	$4.2 billion	$4.3 billion	$4.7 billion	$45.9 billion

 

Forecast for Giving

During survey years 2007 through 2011 — with the big exception of 2008 — two fifths of more of all community foundations expected to increase their giving during the following calendar year (i.e., in 2008 through 2012). The balance of the community foundations in each survey year expected either to see no change in giving or to see a decrease.

Year of Forecast	% Forecast Increase	%  Forecast Decrease	% Forecast No Change
2007	64%	25%	11%
2008	17%	74%	9%
2009	41%	42%	17%
2010	50%	34%	16%
2011	45%	35%	15%

A later post will explore the significance for grant seekers of the five-year philanthropic trends among corporate, community, and family foundations.

Prospect Research: Family Foundation Giving

Family foundations are one type of independent foundation. Concentrated in ten states, they account for about 56% of all independent foundations. They also account for about 63% of total annual giving by independent foundations. Over the last five years reported, family foundations have increased annual giving by $4.3 billion, or 26.4%, to $20.6 billion.

 

 

This post uses Foundation Center data, published in its annual “Key Facts on Family Foundations” series, to explore philanthropic trends among corporate foundations. Its context is the United States of America during the period 2006-10.

 

Total Numbers

 

From 2007 to 2010, the total number of family foundations increased by 1,232 (or 3.28%) from 37,539 to 38,671. Their share of all independent foundations increased by 0.05% from 56.00% to 56.05%.

 

Year	Family Foundations		Independent Foundations
	Number	Percent (%) of Total Number	Total Number
2007	37,539	56.00%	67,033
2008	38,339	56.90%	67,379
2009	38,701	57.43%	67,379
2010	38,671	56.05%	68,992

 

 

Throughout the years 2006-10, ten states had 1,000 or more family foundations: California (CA), Florida (FL), Illinois (IL), Massachusetts (MA), Michigan (MI), New Jersey (NJ), New York (NY), Ohio (OH), Pennsylvania (PA), and Texas (TX). There was no change in the number or names of states having 1,000 or more family foundations during the entire period.

 

Share of Giving

 

In 1998, family foundations accounted for 48% of total giving by all independent foundations. In later years, they accounted for 54% by 2002, for 56% by 2007, and for 63% of total giving by all independent foundations by 2010.

 

Amounts of Giving

 

Each year during 2006-10, roughly one in nine (from 11% to 13%) of all grant-making family foundations reported giving $500,000 or more. By reporting year the rates were: 12% in 2006, 12% in 2007, 13% in 2008, 11% in 2009, and 11% in 2010.

 

Each year during 2006-10, nearly one in two (from 47% to 49%) of all grant-making family foundations reported giving less than $50,000. By reporting year the rates were: 48% in 2006, 48% in 2007, 47% in 2008, 49% in 2009, and 49% in 2010.

 

Total Giving

 

During 2006-2010, total giving by grant-making family foundations has increased by $4.3 billion or 26.4%, from $16.3 billion to $20.6 billion. By reporting year the amounts were: $16.3 billion in 2006, $18.5 billion in 2007, $21.1 billion in 2008, $20.3 billion in 2009, and $20.6 billion in 2010. Amounts of giving by family foundations have not yet recovered the peak of $21.1 billion set in 2008.

 

After rising steadily each year between 2005 and 2008, grant making by family foundations fell between 2008 and 2009, and recovered slightly between 2009 and 2010. Rates of change were +13.3% (2005-06), +13.3% (2006-07), +14.4% (2007-08), -4.0% (2008-09), and +1.1% (2009-10). Rates of growth in grant making are no longer keeping up with or exceeding annual cost inflation rates.

 

Other posts explore social trends among other types of foundations.

Prospect Research: Corporate Foundation Giving

Corporate foundations are one of four primary types of foundation, the others being independent, community, and operating. Concentrated in nine states, they account for about 3.5% of all private and community foundations and for about 10% of total annual foundation giving. In recent years, more or less half (50%±) of corporate foundations have expected to increase their giving in a subsequent calendar year; the rest have expected either no change in giving or a decrease.

 

 

This post uses Foundation Center data, published in its annual “Key Facts on Corporate Foundations” series, to explore philanthropic trends among corporate foundations. Its context is the United States of America during the period 2006-11.

 

Total Numbers

 

From 2006 to 2010, the total number of private and community foundations increased by 4,133 (or 5.7%) from 72,477 to 76,610. Over the same period, the total number of corporate foundations increased by 170 (or 6.67%) from 2,548 to 2,718. Their share of all private and community foundations increased by 0.04% from 3.51% to 3.55%.

 

Year	Corporate Foundations		Private and Community Foundations
	Number	Percent (%) of Total Number	Total Number
2006	2,548	3.51%	72,477
2007	2,498	3.32%	75,187
2008	2,745	3.63%	75,595
2009	2,733	3.57%	76,545
2010	2,718	3.55%	76,610

 

In 2006, eight states had 100 or more corporate foundations: California (CA), Illinois (IL), Massachusetts (MA), New York (NY), Ohio (OH), Pennsylvania (PA), Texas (TX), and Wisconsin (WI). In 2008, Minnesota (MN) became the ninth state to have 100 or more corporate foundations. New Jersey (NJ) joined the list as the tenth state to have so many in 2009, but it left the same list in 2010.

 

Share of Giving

 

From 2006 to 2010, corporate foundation giving (excluding operating foundations) held steady, varying only from 11% to 10% then back to 11% as a fraction of total foundation giving.

 

Giving by Type

 

During 2006 to 2010, annual giving by corporate foundations (excluding operating foundations) increased from $4.1 billion to $4.7 billion (and increased further to an estimated $5.2 billion in 2011). Total foundation giving increased from $39 billion to $45.9 billion over the same five-year period.

 

	Annual Giving by Type of Foundation
Year	Independent	Community	Operating	Corporate	Total
2006	$27.5 billion	$3.6 billion	$3.9 billion	$4.1 billion	$39.0 billion
2007	$32.2 billion	$4.3 billion	$3.4 billion	$4.4 billion	$44.4 billion
2008	$33.8 billion	$4.5 billion	$3.9 billion	$4.6 billion	$46.8 billion
2009	$32.8 billion	$4.2 billion	$4.2 billion	$4.7 billion	$45.8 billion
2010	$32.5 billion	$4.2 billion	$4.3 billion	$4.7 billion	$45.9 billion

 

Forecast for Giving

 

During survey years 2007 through 2011 — with the single exception of 2009 — slightly more than half of all corporate foundations expected to increase their giving during the following year (i.e., in 2008 through 2012). The balance of the corporate foundations in each survey expected either to see no change in giving or to see a decrease.

 

Year of Forecast	% Forecast Increase	%  Forecast Decrease	% Forecast No Change
2007	54%	29%	18%
2008	51%	28%	21%
2009	43%	40%	17%
2010	52%	31%	17%
2011	53%	31%	16%

 

Other posts explore similar trends in other types of foundations.