Ten non-profit funding models

Some nonprofits, such as the Make-a-Wish Foundation, grow large by focusing on causes that resonate with the existing concerns of large numbers of people at all income levels, and by creating a structured way for these people to connect where none had previously existed.

Nonprofit leaders considering the Heartfelt Connector funding model should ask themselves the following questions:

• Have a large cross section of people already shown that they will fund causes in this domain?
• Can we communicate what is compelling about our nonprofit in a simple and concise way?
• Does a natural avenue exist to attract and involve large numbers of volunteers?
• Do we have, or can we develop, the in-house capabilities to attempt broad outreach in even one geographic area?

Some nonprofits, such as the Cleveland Clinic, are reimbursed for services that they provide to specific individuals, but rely on people who have benefited in the past from these services for additional donations. We call the funding model that these organisations use the Beneficiary Builder.

Nonprofit leaders considering the Beneficiary Builder funding model should ask themselves the following questions:

• Does our mission create an individual benefit that is also perceived as an important social good?
• Do individuals develop a deep loyalty to the organisation in the course of receiving their individual benefit?
• Do we have the infrastructure to reach out to beneficiaries in a scalable fashion?

There are some nonprofits, such as Saddleback Church, that rely on individual donations and use a funding model we call Member Motivator. These individuals (who are members of the nonprofit) donate money because the issue is integral to their everyday life and is something from which they draw a collective benefit. Nonprofits using the Member Motivator funding model do not create the rationale for group activity, but instead connect with members (and donors) by offering or supporting the activities that they already seek. These organisations are often involved in religion, the
environment, or arts, culture, and humanities.

Nonprofit leaders considering the Member Motivator funding model should ask themselves the following questions:

• Will our members feel that the actions of the organisation are directly benefiting them, even if the benefit is shared collectively?
• Do we have the ability to involve and manage our members in fundraising activities?
• Can we commit to staying in tune with, and faithful to, our core membership, even if it means turning down funding opportunities and not pursuing activities that fail to resonate with our members?

There are a few nonprofits, such as the Stanley Medical Research Institute, that rely on major grants from a few individuals or foundations to fund their operations. We call their funding model the Big Bettor. Often, the primary donor is also a founder, who wants to tackle an issue that is deeply personal to him or her.

Nonprofit leaders considering the Big Bettor funding model should ask themselves the following questions:

• Can we create a tangible and lasting solution to a major problem in a foreseeable time frame?
• Can we clearly articulate how we will use large-scale funding to achieve our goals?
• Are any of the wealthiest individuals or foundations interested in our issue and approach?

Many nonprofits, such as the Success for All Foundation, work with government agencies to provide essential social services, such as housing, human services, and education, for which the government has previously defined and allocated funding. Nonprofits that provide these services use a funding model we call Public Provider.

Nonprofit leaders considering the Public Provider funding model should ask themselves the following questions:

• Is our organisation a natural match with one or more large, pre-existing government programs?
• Can we demonstrate that our organisation will do a better job than our competitors?
• Are we willing to take the time to secure contract renewals on a regular basis?

Some nonprofits, such as Youth Villages, rely on government money and use a funding model we call Policy Innovator. These nonprofits have developed novel methods to address social issues that are not clearly compatible with existing government funding programs. They have convinced government funders to support these alternate methods, usually by presenting their solutions as more effective and less expensive
than existing programs. (By contrast, Public Providers tap into existing government programs to provide funds for the services they offer.)

Nonprofit leaders considering the Policy Innovator funding model should ask themselves the following questions:

• Do we provide an innovative approach that surpasses the status quo (in impact and cost) and is compelling enough to attract government funders, which tend to gravitate toward traditional solutions?
• Can we provide government funders with evidence that our program works?
• Are we willing and able to cultivate strong relationships with government decision makers who will advocate change?
• At this time are there sufficient pressures on government to overturn the status quo?

Some nonprofits, such as the Iowa Student Loan Liquidity Corporation, compete with one another to provide government-funded or backed services to beneficiaries. Nonprofits that do this use what we call a Beneficiary Broker funding model. Among the areas where Beneficiary Brokers compete are housing, employment services, health care, and student loans. What distinguishes these nonprofits from other government-funded programs is that the beneficiaries are free to choose the nonprofit from which they will get the service.

Nonprofit leaders considering the Beneficiary Broker funding model should ask themselves the following questions:

• Can we demonstrate to the government our superior ability to connect benefit or voucher holders with benefits, such as successful placement rates and customer satisfaction feedback?
• Can we develop supplemental services that maximize the value of the benefit?
• Can we master the government regulations and requirements needed to be a provider of these benefits?
• Can we find ways to raise money to supplement the fees we receive from the benefits program?

Some nonprofits, such as AmeriCares Foundation, have grown large by collecting in-kind donations from corporations and individuals, and then distributing these donated goods to needy recipients who could not have purchased them on the market. Nonprofits that operate these types of programs use a funding model we call Resource Recycler. Businesses are willing to donate goods because they would otherwise go to waste (for example, foods with an expiration date), or because the marginal cost of making the goods is low and they will not be distributed in markets that would compete with the producer (for example, medications in developing countries).

Nonprofit leaders considering the Resource Recycler funding model should ask themselves the following questions:

• Are the products that we distribute likely to be donated on an ongoing basis?
• Can we develop the expertise to stay abreast of trends in the industries that donate products to us so that we can prepare for fluctuations in donations?
• Do we have a strategy for attracting the cash we’ll need to fund operations and overhead?

Some nonprofits, such as the Trust for Public Land, provide a service that straddles an altruistic donor and a payor motivated by market forces. Even though there is money available to pay for the service, it would be unseemly or unlawful for a for-profit to do so. Nonprofits that provide these services use a funding model we call Market Maker.
Organ donation is one example where Market Makers operate. There is a demand for human organs, but it is illegal to sell them. These nonprofits generate the majority of their revenues from fees or donations that are directly linked to their activities.

Nonprofit leaders considering the Market Maker funding model should ask themselves the following questions:

• Is there a group of funders with a financial interest in supporting our work?
• Are there legal or ethical reasons why it would be more appropriate for a nonprofit to deliver the services?
• Do we already have a trusted program and brand name?

There are a number of nonprofits, such as Big Brothers Big Sisters of America, that have grown large by creating a national network of locally based operations. These nonprofits use a funding model we call Local Nationalisers. These organisations focus on issues, such as poor schools or children in need of adult role models, that are important to local communities across the country, where government alone can’t solve the problem. Most of the money for programs is raised locally, often from individual or corporate donations and special events.

Nonprofit leaders considering the Local Nationaliser funding model should ask themselves the following questions:

• Does our cause address an issue that local leaders consider a high priority, and is this issue compelling in communities across the country?
• Does expanding our organisation into other communities fulfill our mission?
• Can we replicate our model in other communities?
• Are we committed to identifying and empowering high-performing leaders to run local branches of our organisation in other communities?