Nonprofit Income Diversification Ultimate Guide

FEB 04, 2020

Developing and maintaining a diversified income for your nonprofit organization is both good risk management and fundraising strategy. 

It is important to have a diversified income so that the organization is in the best position possible to adapt to changes in conditions that may be beyond the organization’s control. 

For example, an organization heavily dependent on government funding may face financial challenges in times of a government shutdown. Likewise, an organization dependent on an annual picnic fundraising event could face financial struggles if the annual event was canceled due to a weather emergency.

Let’s begin our discussion on income diversification with a few key points about the 5 Ws of income diversification.

The 5 Ws of Nonprofit Fundraising Diversification

Our 1st W is WHO – it is important to identify your organization’s current base of donors and analyze the donors in several different ways including but not limited to length of relationship with the organization, giving frequency, giving amount, gender, age and type of donor (individual, corporation, government, civic group, etc.).

A healthy organization should have a mix of donors in each of the different donor levels/groups.

Many times, corporations and civic groups like to see a consistent pattern of individual donor support before making a financial contribution.

In addition, some corporations, governments or groups will match gifts and having a diversified donor base for matching support is key to attracting matching gifts.

WHAT is our 2nd W – what are the donors giving their support to within your organization?

Are the donors contributing to specific programs, wish list items, capital campaigns, general operating support or other areas?

Maintaining a diversified group of donors who support a variety of services within the organization is important when attracting new donors or having a base of support for matching gifts. Knowing what type of need your donors are interested in supporting helps with a last-minute or urgent appeal to reach a goal, whether it is for an operational or capital campaign contribution.

Our third W is WHEN – donors should be providing support to the organization throughout the year and responding in a supportive way to urgent or specific appeals. Having a diversity of support throughout the year helps to develop a stable organization cash flow for planning purposes.

Our next W is WHERE – identify the source of donors and their initial point of contact with the organization and work to maintain a diverse pipeline of donors.

Some donor’s first introduction to the organization could be through volunteerism while others may be attracted to the organization after attending a special event.

Ask as a part of donor campaign materials, “Where or How” did you learn about the organization to begin to gather this data. Make sure this information is recorded into your donor database.

In addition, if special events are part of your fundraising plan, where are the events held and are the locations appealing to the donors you hope to attract or maintain?

Our final W is WHY – we return to the place where we first began this conversation. 

A healthy organization is one who has a mix, or diversity, of donors. It is because of the diversity that the organization is in a position to attract new donors and in a position to be more stable when confronted with an emergency or critical situation. 

There is no particular ideal mix for an organization – as each organization has unique needs and situations. The biggest hurdle is the work of donor analysis. Information is power and with information gathered through donor analysis, the organization will grow stronger.

Determining if Your Organization has a Diversified Donor Base

To determine if your organization has a diversified donor base begin to learn WHO your donors are.

With this initial information, begin to identify any groups/segments not contributing or perhaps not being offered an opportunity to learn about or support the organization. Look for gaps and key groups missing or overlooked.

Also, look for specific times of the year when donors are giving at high levels (both # of gifts and gift size) and learn about what is taking place in these high participation months/periods.

Consider adding an appeal, campaign or event in the lower activity months/periods. This information will also be helpful in identifying preferred times for cultivating major gifts.

Identifying Underrepresented Donor Segments

Once you have an idea of WHO your donors are… begin a conversation with organization leadership to identify new donors or donor segments that are underrepresented and segments that could be built larger with a few key action items.

For example, if you notice that you have no civic group support, begin a plan to reach out once a quarter to local rotary clubs and offer to attend a meeting and share key success stories or volunteer opportunities.

A diverse donor base takes time and determination to build and maintain. The effort will be worthwhile in the long run to the organization’s overall fundraising plan and management.

Ruth Patrick Sharity Expert

Ruth Patrick

Sharity Expert

Ruth has a 30+ year career in executive leadership in the non-profit sector. She has skills in program development, human resource and facility management, strategic planning, donor stewardship, fund raising, systems planning, grant writing, finance, marketing and social entrepreneurship. She has worked with local, regional and national nonprofit organizations in executive leadership positions. Currently she is a nonprofit consultant. Ruth is a graduate of Rollins College, Crummer Graduate School of Business, Executive MBA in Winter Park, Florida. She graduated from Florida State University with a B.S. degree in Business Management.