Putting Grants in Perspective

Published August 14th, 2023

            The biggest challenge facing most nonprofits is fundraising. Anyone with any proximity to the nonprofit sector is aware of the disconnect between the massive problems that these organizations are working to solve and the limited financial resources available to them to do their work. One of the most talked about revenue sources in this sector is grants, but can an organization survive on grants alone? How do most organizations keep the lights on?

Nonprofit Revenue by Source:

            Nationally, grants from foundations and corporations only make up less than 4% of all nonprofit revenue. This is less than half of the total amount given each year by private individual donors. The vast majority of funding comes instead from government contracts and private fee for service earnings, which equal more than 80% of total nonprofit support. (It is worth nothing that financial data from hospitals and universities do inflate the fee for service numbers in this assessment.)

These statistics reveal some important lessons: 

• Government funding remains a key source of nonprofit revenue, although rarely supports the full costs of the agency’s operations.
• Some type of “business” revenue is almost always necessary to sustain operational costs. This could include membership fees, ticketing, merchandise sales, or charging for services rendered. See local examples.
• Grants from foundations help fill in gaps in the budget, but are usually a small portion of the organization’s annual revenue.
• Building a network of private supporters can greatly strengthen your agency’s financial position. The National Philanthropic Trust found that individuals gave nearly $500 billion to charitable organizations in 2022, which is roughly five times the amount given by philanthropic foundations that same year. See local examples.

Every organization is different, however this data suggests that the most financially sustainable nonprofits have a lot in common with the most financially sustainable for-profits: they have identified an attractive product or service they can deliver to a paying audience. In some cases, their primary customer may be the government who is hiring them to perform a service. In other cases, it may mean charging individual clients a fee – though ideally one that is lower than the market rate or is offered on a sliding scale to ensure equitable access.

Looking at these numbers, you could be forgiven for asking if you should bother developing a strong relationship with local funders if they are only going to make up a small portion of your overall funding. Fortunately, the philanthropic sector – and especially local funders – fills a unique space when it comes to nonprofit support that often goes beyond the dollar amount of their grantmaking budget. Key examples include:

• Funding “unattractive” projects: private donors may get out their wallet to help pay for a child to receive medical treatment, but will they pay for a new HVAC system or a network security upgrade? Foundations are more likely to recognize the importance of these investments, despite them not being as emotionally compelling.
• Providing training and other non-grant resources: because most funders interact with a broad range of nonprofits across different areas, they are able to anticipate and react to needs across the sector and respond with targeted programs. Locally, programs like Embracing Disruption, The Learning Classroom, the Salt City Market, Nourishing Tomorrow’s Leaders, the Board Development Series, and various grant writing workshops are examples of how Syracuse-based foundations have collaborated to offer industry knowledge and support.
• Facilitating partnerships: relationships are a key part of philanthropy. Consider reaching out to your local funders to help brainstorm opportunities for collaboration, or to identify new funding sources. Foundations can also leverage their reputation on your behalf by generating a letter of support, and even a small grant from a foundation can often be multiplied into more funding because it tells other donors that the organization has already passed through a due diligence review.

As more nonprofits take on creative experiments to expand their revenue, more for-profit companies are also responding to pressure to take stands on political issues and be transparent about their values as a company. Moving forward we are already seeing a blurring of the lines between for-profits and nonprofits, where commercial brands embrace advocacy work and nonprofits embrace entrepreneurial projects. One big example was the international clothing brand Patagonia radically restructuring to direct 100% of future profits to environmental protection work. Locally, we have also seen multiple charitable organizations release lines of commercial merchandise like branded pasta sauce and even open brick and mortar businesses to support their work – like Café 407 in Liverpool whose profits directly support Ophelia’s Place.