Paths to Nonprofit Sustainability

From small community nonprofits to large NGOs, they all have one thing in common: A desire to achieve sustainability. While smaller nonprofits may seem to have an advantage because it takes fewer dollars to maintain their operations, large nonprofit organizations are actually better positioned to achieve sustainability because of their name recognition,  longevity (the largest nonprofits have been around for decades), and established role in delivering needed services to communities. Think of the International Red Cross or the Salvation Army.

This isn't to say that large nonprofits have it easy. Their large size means they need to secure millions of dollars each year to sustain their operations. Additionally, because of their size and public presence, large nonprofits' fundraising strategies and programmatic decisions are vulnerable to public scrutiny and criticism.

According to the National Center for Charitable Statistics, in the United States alone there are more than 1.5 million nonprofits, with 30,000 new nonprofits forming each year. Many of these nonprofits will eventually pursue grant funding to sustain their operations. When they do, they'll face intense competition. Despite enormous sums set aside each year by governments, foundations, private individuals, and corporations, the reality is that grant funding is hard to secure, particularly for new nonprofits. Nonprofits with solid track records working on causes compelling to the general public have a much easier time securing grants than recently established nonprofits or nonprofits working on controversial issues.

While there are close to 90,000 foundations operating in the U.S. according to the Foundation Center, the largest nonprofits absorb the greatest share of those resources, making it harder for smaller and mid-size nonprofits with less name recognition to grow.

When it comes to grant funding, regardless of whether you are just starting out or have been in operation for years, it's not safe to assume that you'll be able to maintain your organization's operations on grant funding alone. Grants should be part of your business plan, but relying on a steady flow of grant funding as the cornerstone of your funding plan could put you at risk.

Grant Funding Isn't a Guarantee--So What Can You Do?

Achieving sustainability is the holy grail of the nonprofit world. Everyone wants it, few achieve it, and even those that do reach a level sustainability go through periods of expansion where staff are added and programs expand and periods of contraction where staff and services are cut.

Many nonprofits, to help weather the boom-and-bust cycle, try to diversify their funding sources. Pursuing grants from multiple funding sources, from private foundations to government agencies, can be part of a diversification plan. But grants--even if they come from multiple donors--represent a single type of funding source. For true diversification, you need to identify multiple revenue streams.

In addition to traditional fundraising strategies such as direct solicitation of individual donors and fundraising events, other options exist to generate revenue. They include participating in income-generating activities and entering into partnerships with other organizations.

Another, complementary approach to achieving sustainability is to adopt practices that reduce your organization's operating expenses.

Alternative Funding Sources

In addition to grant writing, income-generating activities to consider include:

  • Selling a range of general merchandise branded with your organization's logo that may or may not be related to your organization's mission (e.g. a coffee mug with your organization's logo);
  • Selling products made by your organization or your organization's clients;
  • Offering fee-based services to the wider community while offering free- or reduced-fee services to your clients;
  • Corporate partnerships and collaborations with other nonprofits; and
  • Membership fees or dues.

Examples of organizations that have used one or more these approaches include the American Red Cross, Krotchet Kids, Goodwill Industries, PATH, and Seven Women:

  • The American Red Cross sells branded first-aid kits and other items through its online store.
  • Krotchet Kids,  a U.S.-based nonprofit, funds the majority of programmatic work through sales of knitted items made by its client population (women living in poverty in Peru and Uganda).
  • Goodwill Industries provides job training and educational opportunities to seniors, veterans, those with a criminal background, and individuals with special needs. The overwhelming majority of Goodwill's funding comes from their retail shops, which sell used clothing and household goods. In 2013, Goodwill's retail operations generated $5.37 billion.
  • PATH, a U.S.-based global health organization, leverages corporate partnerships to further its work. Partnering with a range of companies from pharmaceutical companies to technology companies such as Microsoft, PATH has found innovative ways to bring funding and other forms of assistance to support their work.
  • Seven Women, an Australian charity, began to help seven disabled women living in Nepal who were suffering from discrimination because of their disabilities. The organization has since expanded and now helps hundreds of women in Nepal by providing skills training. The project is funded in part through handcrafted products made by the women.

Although not a nonprofit organization, the company Toockies does something similar to Krochet Kids and deserves mention as another model to support charitable work.  Just like Krotchet Kids, Toockies teaches impoverished women how to knit, pays the women for the products they make, and then sells the products (hand-knit cloths) to support the cost of the program. Toockies works with women Nababpur, India.

 Strategies to Reduce Expenses

Another strategy to support organizational sustainability is to reduce operating costs.  Many nonprofits reduce costs by relying on volunteers instead of paid employees. Depending on the type of work, volunteers can provide organizations with valuable services. That said, there are costs associated with training and managing volunteers so a volunteer program is not entirely "free" labor. However, it is labor at a reduced cost and those savings can be pivotal in helping your organization to maintain its range of services.

Another strategy to reduce expenses and make your organization more sustainable is to partner with other nonprofit organizations in your community to share overhead costs. This could take the form of using shared office space. It could also take the form of bartering, such as allowing a fellow nonprofit to use your conference space in exchange for help with your next fundraising event.

The Posner Center, based in Denver, Colorado, is an example of a nonprofit with a novel approach to sharing resources. The Center fosters collaboration among Colorado-based organizations that work on international development issues. The Center's office consists of 50% shared or common space that it rents out to other organizations for meetings and events.

Sustainability doesn't always lead to the survival of a nonprofit organization. If the goal is more to create sustainable services in a community than to keep a particular organization operating, nonprofit mergers--merging operations with another nonprofit that offers similar services--can be a viable strategy.

 Sustainability Requires More than Money

Organizational sustainability is not just about money. Sustainability also requires effective leadership. Just like in the for-profit world, nonprofit enterprises can be undermined by poor management and lack of oversight. One of the ways an organization can protect itself against poor management is to have a solid business plan in place that includes performance measures. If you have systems in place to monitor when the organization has gone off track, and you catch the problem early, you're in a much stronger position to remedy the problems before they fatally undermine your organization's fiscal health or programs.

Supporting staff and creating a positive work environment is another aspect of fostering sustainability. An organization that supports its staff not only minimize staff turnover (staff turnover has many implications, including cost), but also it fosters a team environment that is more resilient and better able to manage changes in leadership and organizational structure.

Creating a Path to Sustainability

It's not easy to achieve sustainability, but there are resources and accepted strategies.

Nonprofits can foster sustainable operations through diversifying their revenue sources and effectively managing their existing funding. To learn more about sustainability, you can find guidance in resources like the articles and books listed below. You can also find information through local and national nonprofit resource centers such as the National Council of Nonprofits.

Creating a path to sustainability requires combining good management and effective leadership with creative thinking about sources of revenue.

Grants are a valuable part of the funding mix for the nonprofit community, but grant money alone is not enough. Donors' interests can change and competition for grant funding continually increases. While multiple sources of revenue may not translate into an organization having a steady amount of income, having multiple sources of income can position an organization to withstand the loss of a grant without having to make drastic cuts in services.

Resources

Articles

Books