A funding model is a methodical and institutionalized approach to building a reliable revenue base that will support an organization's core programs and services. While it is common practice among most nonprofits to seek funding from multiple sources, research has shown that 90 percent of the largest nonprofits have embraced funding models built around a single dominant source of revenue (such as a government group, a corporation, or an individual donor).
Different types of nonprofits are suited to different funding models, depending on their mission and programs. Funding models are defined and distinguished from one other based on three characteristics: (1) the type of funding (e.g., government or individual), (2) the funding decision maker (e.g., government administrators or wealthy individuals), and (3) the funder's motivation (e.g., altruism or self-interest).
How it's used
Developing a funding model can help a nonprofit achieve financial stability and sustainability, which is critical to supporting an organization's program strategy. Nonprofits that have clear insight into their funding model are able to raise their revenues more efficiently because they can strategically focus their development efforts on the most promising funding sources and build the internal capacity needed to identify and cultivate those funders.
Nonprofit managers and key stakeholders can select and implement a funding model through six related steps:
- Analyze your current approach to funding: To understand your current state, assess the reliability of existing sources, understand current funder motivations, and evaluate internal development capabilities.
- Learn from the funding approaches of peer nonprofits: Benchmark peers' funding mix to help identify potentially promising approaches to fundraising in your field.
- Using your current state and external analyses, develop and narrow a set of funding model options that are sustainable, replicable, and feasible.
- Evaluate the revenue potential and costs of short-listed funding models: Dive deeper into your narrowed list of funding models to evaluate how much money your organization could feasibly garner from each model. It's also important to identify the internal organizational investments necessary for each funding model (e.g., staff expertise or donor-management software).
- Select funding model(s) to implement: Based on the information gathered from the first four steps, decide on one or two funding models to implement.
- Develop an implementation plan: Decide on internal investments, roles, milestones, and a clear learning agenda to help implement and evaluate new funding models.
Finding Your Funding Model: A Practical Approach to Nonprofit Sustainability
This practical guide can help readers develop and cultivate funding models for nonprofits.
Ten Nonprofit Funding Models
Working from years of research, Bridgespan developed a list of 10 nonprofit funding models that are commonly used by the largest nonprofits in the United States, complete with examples for each model.