By Rachel Hutchisson, Chair of The Giving Institute, Vice President of Corporate Citizenship & Philanthropy at Blackbaud
Diverse revenue streams and individual fundraising play a key role in a healthy funding mix. As we shared in our recent report from the Blackbaud Institute, The Right Mix, dependence on any one source of giving could affect your financial security and ability to retain donors. For many organizations that have been set up with a single funding model, thinking outside the box to diversify revenue streams can help achieve greater funding success.
A first step in this evolution is to ensure that the right voices are at the table. Fundraisers can and should be a key part of discussions around funding streams. While there is a growing understanding about the importance of a culture of philanthropy across the sector, many organizations still make high-level funding decisions in a vacuum, with only executives and the finance team at the table. Similarly, marketing and fundraising strategies must be aligned to best frame and communicate the value of your mission and programs. When all organizational areas are part of the discussion on funding mix and aligned on the plan moving forward, you can accelerate your impact.
Before you can make decisions about reshaping your funding mix, you need to know your current risk level. The Dependency Quotient, developed by BoardSource®, measures the extent to which an organization is dependent on its top donors to fund its work. According to BoardSource, “It’s an indicator of how vulnerable the organization could be in the face of changed priorities among its top funders. Generally speaking, organizations should seek to have a lower Dependency Quotient, indicating that they are more resilient to changes in top donor giving.” As BoardSource shares, it is very difficult to achieve both a low Dependency Quotient and a low cost of fundraising. Broad-based fundraising efforts tend to bring in more low- to mid-level donors and are more expensive because of it. Meanwhile, strategies like major gift fundraising can cost less, but leave the organization more dependent on a smaller number of big gifts. This is exactly why cost of fundraising should not be the only measure of effectiveness. Anne Wallestad, BoardSource President and CEO, shares more on the topic in this sgENGAGE podcast episode, Is Your Fundraising Diversified?
With better knowledge of the current dependency on certain funding sources, you can move forward with evaluating alternate avenues. Many organizations are already competing for the same grant dollars from traditional funders. In recent years, however, new ways of financing your mission have emerged on the scene. Financing methods like venture philanthropy grants, impact loans, equity investment, and donor advised funds (DAFs) have the potential to bring untapped dollars into the social sector. You should be well versed in these options as you consider the right funding mix for your organization.
And as with all practices, benchmarking is critical to understanding your organization’s ideal funding mix. Take the time to evaluate how your funding model differs from similar organizations, then consider whether any differences in your funding mix are truly intentional because of a unique business model or if you could find greater success by following other models. Don’t be afraid to reach out to other organizations. Together, you can share ideas, successes, and failures to find the best-performing funding practices. The Contributor Development Partnership for public broadcasting, initiated and managed by WGBH in Boston, is a great example of the success that organizations can achieve when they come together. Now in its seventh year, it has 133 collaborating public media stations across the nation engaged in collaborative research and knowledge sharing. Its work has produced incremental revenue of over $100 million for the stations. Think creatively about which types of organizations, both in your local area and outside it, could provide inspiration for funding models and practices. You can read more about thinking outside the box for funding success in Finding Your Own Right Mix: Steps for Evaluating Your Organization’s Funding Streams.
With the changing landscape of philanthropy, sustainability of our organizations has never been more critical. In keeping an eye on the diversity of your organization’s funding, you can enhance your ability to weather changes and continue to find success toward achieving your mission.