Nonprofit funding: A beginner’s guide

From program expenses to incorporation fees, staffing, and events, the cost of running a nonprofit can add up quickly.

But how do you raise money for your nonprofit? Keep reading to learn about eight different sources of funding available to nonprofits, several popular funding models, and five steps toward launching a winning funding strategy for your organization.

Best sources of funding for nonprofit organizations 

Every nonprofit is different, so there isn’t a single perfect ratio of funding sources to meet every organization’s needs. Your best bet is to rely on a number of different income sources, and luckily, there are many to choose from! 

Let’s take a look at eight popular nonprofit funding sources and some pros and cons of each.

1. Individual donations and major gifts 👤

One of the most popular methods for funding a nonprofit is through individual donations. These are the contributions (both small and large) that supporters give throughout the year via major gifts, grassroots campaigns, fundraising events, and more, and they can be made once or on a recurring basis.

Making up up 64% of all giving in 2022, individual donations are generally a cost effective way to bring in funds and create connections, but they also rely on consistent donor cultivation and stewardship and can be impacted by economic fluctuations, like inflation. 

With an easy platform like Givebutter, you can make the most out of this nonprofit funding source with custom donation pages, peer-to-peer fundraising campaigns, easy giving tools like text-to-donate, plus a full spread of marketing and donor management features for ongoing supporter engagement—all for free.

2. Foundation grants 📋

Foundation grants are financial support from private foundations or grant-making organizations to fund specific projects or initiatives. Considered the runner-up to individual donations, foundations made up 21% of all nonprofit giving in 2022.  

It’s worth noting that applying for grants can be highly competitive and time consuming—only about 1 in 10 grant applications gets funded, and each can take between 15-20 hours to complete. 

3. Corporate contributions 🏢

Corporate philanthropy involves partnerships between nonprofits and businesses and can provide charities with significant financial support. However, corporations may have specific focus areas, limiting opportunities available to many organizations. 

Like foundation grants, many nonprofits vye for these kinds of funds, making this funding source competitive, too. But asking for donations from companies at a more local level can be a more successful route for many organizations. 

4. Government grants and contracts ⚖️

Government grants and contracts involve nonprofit funding provided by local, state, or federal government agencies for specific projects or services that align with public policy objectives.  

You guessed it—the application and reporting processes can be complex and highly competitive—on average, only 1 in 7 grant proposals are awarded, but if you can get your foot in the door, government grants can be a worthwhile investment of your time an energy.

5. Membership fees and dues 🤝

Popular with many grassroots organizations, this nonprofit funding structure relies on generating revenue from membership dues or charging fees for specific services, programs, or benefits. Though this is a great way to bring in predictable revenue, this kind of funding depends on solid member engagement for long-term sustainability. 

6. Tax programs 💸

With tax programs, organizations can leverage tax-deductible contributions or tax credits to encourage charitable giving, which can incentivize sizeable contributions. Tax programs can often require compliance with complex regulations and can be impacted by changes in laws. 

7. Bequests 🏠

Bequests are gifts received from individuals through their wills or estate plans, often after their passing. Though this type of funding can create long-term support for an organization, it can involve legal complexities and administrative challenges and be difficult to market. 

8. Selling goods and services 👕

Generating revenue by selling goods or services related to the nonprofit's mission or expertise is an exciting opportunity to engage supporters in a new way. For small nonprofits, selling goods may be too expensive, as it often requires additional tools and resources for sales, though new online platforms have made this process easier in recent years. 

What is a nonprofit funding model?

A funding model is a systematic approach to creating financial stability and sustainability for your nonprofit. The best funding model for your organization depends on your mission and programs. 

Three different characteristics classify funding models:

• Funding type 💰 The entity providing the funds (government, individual, corporation, etc)
• Funder's motivation 💛 The incentives of the donor (altruism, tax incentives, etc)
• Funding decision maker 👤The person who ultimately determines whether funding is given or not (foundation board, individual donor, etc)

Top 6 nonprofit funding models according to type

In order to bring in the most funds possible, it’s crucial to choose a funding model that aligns with your budget, resources, and overall mission. 

Nonprofit expert Linda Handley offers six nonprofit funding models to consider, based on funders’ different motivations and the needs and strengths of different kinds of nonprofits. 

1. Heartfelt Connector 💛

🧈 The spread: Heartfelt Connectors build explicit connections between like-minded volunteers and donors via special fundraising events.

👥 Who it’s for: Organizations like Make-A-Wish—which hosts a variety of fundraising events a year—that bring together large numbers of people of all income levels who can empathize with the cause.

2. Beneficiary Builder 🏩

🧈 The spread: This model involves an organization providing services to individuals, receiving payment for those services, and then relying on the individuals who benefited from the services to give additional donations.

👥 Who it’s for: Nonprofits (particularly universities or hospitals like Cleveland Clinic) that establish long-term relationships with donors who are former beneficiaries of their programs.

3. Public Provider 🏛

🧈 The spread: The government often sets aside funding for specific initiatives to be outsourced to nonprofits.

👥 Who it’s for: Nonprofits like the Success for All Foundation that work with government agencies to provide essential social services such as housing, education, and human services. 

4. Policy Innovator 💡

🧈 The spread: These organizations develop alternative methods to address social issues that aren't compatible with existing government funding programs. Governments will often fund these organizations if their methods are cheaper or provide more effective results. 

👥 Who it’s for: Nonprofits that have an optimal solution to an unmet social need—and can convince government funders to support it—such as Youth Villages, an organization that uses government funding to help emotionally troubled children and their families live successfully.

5. Resource Recycler ♻️

🧈 The spread: These organizations distribute in-kind donations to recipients in need. While nonprofits still need to raise funds for their operating costs, the Resource Recycler method allows them to make a difference without incurring the cost of producing these resources.

👥 Who it’s for: Nonprofit organizations, like Americares Foundation, that provide non-monetary donations, such as supplies, from individuals and corporations to those in need.

6. Local Nationalizer 🌎

🧈 The spread: The Local Nationalizer method involves creating an extensive, national network of locally-based operations that receive funding through local individuals, corporate donations, and special events.

👥 Who it’s for: Organizations that have several locally-supported branches across the nation that each address the needs of their specific community, like Big Brother Big Sisters of America.  

How to get started on your nonprofit funding journey in 5 simple steps

Don't get weighed down by the bureaucracy and red tape sometimes involved in the hunt for funds. Instead, try these five simple steps for a smoother approach to your fundraising efforts.

Step 1: Define your goals, mission, and story ✍️ 

When beginning the search for nonprofit funding, you must consider your short-term and long-term goals, often made during a strategic planning process. 

With your mission in mind, answer these questions:

• What do you plan to do with the money you raise? 
• How will it help your organization's mission and goals? 
• Are your goals SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound)?

Step 2: Create your fundraising team 🏆 

Fundraising has many moving parts. To streamline the process, assemble a team of staff, board members, or volunteers that can take on various roles, that may include:

• Fundraising promoter and marketer
• Event organizer
• Volunteer coordinator
• Grant writer 
• Finance manager 

Step 3: Build a prospect list 💪 

With your goals and team in hand, carrying out your plan will be much easier. The next step is to research your options within the particular sources of funding or funding model you’ve chosen. 

If you’re going the route of individual giving, a prospect list can help you identify who to start reaching out to. To build a donor list, consider prospective donors…

• Geographic location
• Interests related to your cause 
• Demographics
• Education level
• Philanthropic history
• Affiliations
• Ability to give (or wealth capacity) 

Make your list-building easier with online tools like Donorsearch that can help you learn more about supporters’ giving capacity.

Step 4: Create a campaign plan 📋 

Begin your campaign plan by defining how you'll raise money. Your fundraising campaign plan should address the following: 

• Marketing ​​(how you'll promote your campaign, how people will hear about your fundraising events, etc.)
• Incentives (e.g. how you’ll be able to encourage recurring donations and larger gifts)
• Budget (what resources you have to allocate to your fundraising efforts, etc.)

Step 5: Show gratitude 🙌 

No matter how you raise money for your nonprofit organization, you always need to build in thank-yous to your workplan.

For an individual giving model, showing gratitude can look like any (or all!) of the following: 

• Send a thank-you note and donation receipt promptly after receiving a contribution.
• Post individual and group thank yous for your supporters on social media. 
• Highlight donors’ stories in a newsletter. 

Nonprofit funding made easy—with Givebutter

Whether you're a small startup or a well-established organization with a large staff and plenty volunteers, your nonprofit funding strategy is always worth examining to see what you can do better. 

Givebutter offers nonprofits a full suite of free features for individual giving, bringing together everything you need to raise funds, engage donors, and manage your transactions and donor data in one convenient place. 

With donation forms that encourage recurring gifts, to a robust nonprofit CRM and free marketing tools like email, text messages, and letters, you can take your funding strategy to greater heights. Plus, Givebutter also integrates seamlessly with other platforms like Double the Donation to facilitate greater corporate giving, too. 

Sign up today and see how Givebutter can help you streamline your fundraising, raise more, and pay a whole lot less for the tools you need for successful nonprofit funding.