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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 as Revenue:

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.

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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.

 

Type of Organization Source of Revenue
  Gov’t Grants Fees Investments Donations Other
Arts, Culture, Humanities 12% 29% 9% 43% 7%
Education 12% 56% 17% 13% 2%
Environment and Animals 12% 24% 7% 48% 9%
Healthcare 37% 56% 3% 2% 2%
Human Services 36% 41% 3% 16% 4%

 

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

A little innocuous statistical espionage enables potential grant seekers to gauge the competition and to refine their strategic positioning for winning grants.

 

This post explores how many nonprofit organizations exist, in the United States of America, as potential rivals for funding — and their varied mixes of funding sources. Later posts will explore other aspects of US nonprofits’ revenue development strategies as well as their options for seeking grants.

 

Numbers of Nonprofit Organizations:

In An Overview of the Nonprofit and Charitable Sector (2009) the Congressional Research Service (CRS), citing data from the National Center for Charitable Statistics, reported that out of 987,033 charitable organizations registered with the Internal Revenue Service (IRS), 99,263 (or 10.06%) were in arts, culture, and humanities; 149,411 (or 15.14%) were in education; 4,177 (or 0.42%) were in higher education; 45,882 (or 4.65%) were in environment; 72,410 (or 7.34%) were in health; and 261,984 (or 26.54%) were in human services. (All data are as of July 2009.)

 

Out of the same 987,033 registered charitable organizations, 512,889 (or 51.96%) were large enough to be required to file 990 returns with the IRS. Among these 512,889 organizations, 64,347 (or 12.55%) were in arts, culture, and humanities; 91,113 (or 17.76%) were in education; 2,378 (or 0.46%) were in higher education; 24,924 (or 4.86%) were in environment; 49,357 (or 9.62%) were in health; and 163,885 (or 31.95%) were in human services. (All data are as of July 2009.)

 

Sources of Revenues:

In its Overview of the Nonprofit and Charitable Sector (2009) the Congressional Research Service (CRS), reports that for charitable organizations, private payments for service are the largest category of revenue. Private payments for service may include a wide variety of services, such as payments for medical care and education tuition. In 2005 (the most recent year the CRS reported) charities collected $590 billion in payments for services, which constituted 49% of total revenue.

 

The second largest revenue source for charitable organizations is government grants and payments. In 2005, charities collected $351 billion worth of government grants and payments or 29% of total revenue.

 

In 2005, private contributions (donations) were $143.7 billion, or 12% of total revenue to charitable organizations. Private contributions to charities were their third largest revenue source.

 

Charitable organizations made $81 billion from investments in 2005, which represented 7% of their overall revenue. Investment income included the sales of securities, interest, and dividends. The recent Great Recession greatly reduced revenue flowing into charitable organizations from investment income.

 

Other revenue, of which there were $30 billion in 2005, makes up 3% of overall revenue received by charitable organizations. Such revenue comes from sources such as membership dues, net special events income, and other miscellaneous revenue-raising activities.

 

Later posts will explore nonprofits’ differentiated revenue sources as well as trends in the numbers of grant-making foundations from which they might seek funding.

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