10 Funding Models for Non-profit Organizations

Sustainability is the one issue that comes up time and again in operating a non-profit organization or ministry organization. While it is not easy to discuss funding and finances especially in faith-based endeavors, they are very much a real world necessity.

The Stanford Social Innovation Review (Spring 2009) published this very valuable article, Ten Nonprofit Funding Models, by William Foster, Peter Kim, Barbara Christiansen. Thanks to The Bridgespan Group for linking to it as a blog post. The original article is also available in PDF format. Here’s an excerpt that introduces the complexity of non-profits when compared to a for-profit business:

In the for-profit world, by contrast, there is a much higher degree of clarity on financial issues. This is particularly true when it comes to understanding how different businesses operate, which can be encapsulated in a set of principles known as business models. …

… The nonprofit world rarely engages in equally clear and succinct conversations about an organization’s long- term funding strategy. That is because the different types of funding that fuel nonprofits have never been clearly defined. More than a poverty of language, this represents—and results in—a poverty of understanding and clear thinking.

Through our research, we have identified 10 nonprofit models that are commonly used by the largest nonprofits in the United States. Our intent is not to prescribe a single approach for a given nonprofit to pursue. Instead, we hope to help nonprofit leaders articulate more clearly the models that they believe could support the growth of their organizations, and use that insight to examine the potential and constraints associated with those models.

… One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary… it has not identified its economic engine. That is a separate step.

… As a result of this distinction between beneficiary and funder, the critical aspects (and accompanying vocabulary) of nonprofit funding models need to be understood separately from those of the for-profit world. It is also why we use the term funding model rather than business model to describe the framework. … A funding model, however, focuses only on the funding, not on the programs and services offered to the beneficiary.

Read the entire article for the 10 funding models.