How Nonprofits Get Really Big

Since 1970, more than 200,000 nonprofits have opened in the U.S., but only 144 of them have reached $50 million in annual revenue. Most of the members of this elite group got big by doing two things. They raised the bulk of their money from a single type of funder such as corporations or government – and not, as conventional wisdom would recommend, by going after diverse sources of funding. Just as importantly, these nonprofits created professional organizations that were tailored to the needs of their primary funding sources. [Excerpted from article]

This study of 144 nonprofits that started in 1970 or later and now have at least $50 million in revenue identified several characteristics of success. With respect to fundraising, these organizations: (1) developed funding in one concentrated source rather than across diverse sources; (2) found a funding source that was a natural match to their mission and beneficiaries; and (3) built a professional organization and structure around this funding model.

90% of the nonprofits studied had a single dominant source of funding–from large donations or corporate gifts. More than two-thirds not only had a dominant source of funding, but also a specialization within that area: for example, not just government funding, but also state government funding; not just individual donations, but also small individual donations; and not just corporate donations, but also in-kind corporate donations.

Only a very few nonprofits knew from the start where they would obtain their funding sources; most were uncertain until they pursued their goals and began to concentrate on particular sources. Although dominant funding sources fuel nonprofit expansion, secondary sources are still important. Of the 101 organizations that have a dominant funding source, more than 20% have a secondary source that accounted for 10% or more of their revenue.

Leadership is important for funding. When nonprofits are small, they raise money from a variety of many donors who give small amounts of money. However, when the executive director is exceptional, he or she can often obtain more funding from these larger sources.

Government has provided most of the money for 40% of these organizations and can also be an important source of funds, particularly where the nonprofit serves a need that falls within a particular government agency’s authority.

Other important sources of funding include:

• Service/program fees are the second most important source of money for nonprofits, providing 33% of the funding for the organizations studied.
• Corporations provided 19% of the funding for the nonprofits surveyed, mostly through donations, rather than cash.
• Individuals were the primary funders for 6% of these nonprofits.
• Foundations were the least frequent source of funding, accounting for only 2% of support.