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How to Raise Money for a Nonprofit

November 29, 2006
URL: http://www.entrepreneur.com/article/171296

This article was excerpted from Nonprofits Made Easy. Buy it today from EntrepreneurPress.com.

Cash, as they say, is king. Without it, you can't provide the programs and services that your nonprofit is designed to provide. Unlike a for-profit business, you can't promise investors a return on their investment (except a psychic return) or look to future sales to provide a profit. So where do you get the necessary cash?

You ask for it. You ask individuals for direct donations. You ask foundations and government agencies and corporations for grants to support specific programs and projects. In time you can ask for direct donations from corporate and private philanthropies. The overall term for this asking is fundraising.

There are two fundraising commandments: simplify and focus. Many small nonprofits have trouble raising money because they pursue every conceivable opportunity, thereby diluting their efforts and losing sight of their mission.

Fundraising involves all acts of soliciting donations for a nonprofit agency. It includes efforts to raise money from:

  • Individuals
  • Grants
  • Philanthropies (either private or corporate)

Add fees for service and similar revenues to the list. While these are not charitable donations, they can be a significant source of funds for a new nonprofit.

Most startup nonprofits are limited to seeking donations from individuals and special events. (A very few might be able to secure government funding for a specific program, but this is rare.)

Once up and running they might qualify for specific grants (usually program-related) and philanthropic donations. Program officers (who make the donation decisions in these organizations) look for a good track record, proven success, and a strong executive director as proof that their donations will make a positive difference and achieve their program and philanthropic goals. By definition, startups lack the first two and won't be able to overcome this barrier without an exceptionally well qualified and well connected ED.

In any case, fundraising starts simply enough.

It all begins with the case statement: a short (one or two pages) written statement that lets prospects know what you intend to do with their donations and why their donations will make a positive difference to the community. The case statement makes the case for making the donation, provides the basis for collateral material (brochures, letters, pamphlets and so on), and helps keep the message of your nonprofit consistent and compelling. Without a clear case statement, your message will be muddled and lost.

Step 1: The Case Statement
Here are some of the questions to answer in your case statement:

  • Why are you in business? That is, what is the problem you are trying to alleviate or resolve? This is an expansion of your mission statement.
  • What outcomes do you anticipate? These should be measurable and publicly observable, not a vague "improve lives" kind of statement. What specifically are you trying to accomplish with this specific program or service?
  • How is your organization different from other organizations?
  • How will you achieve your program and service goals? What methods will you use? Your coverage of this point doesn't have to be exhaustive.
  • What major accomplishments has your nonprofit achieved? People give to successful organizations and tend to avoid giving to struggling ones.
  • What is the history of the organization? When was it founded, by whom? How is it financed? What is the organization's philosophy? How does it work with other nonprofits?

It is longer than an elevator speech (that 30-second spiel designed to stimulate interest) but much shorter than a business or strategic plan. The overriding purpose of the case statement is to persuade the potential donor to open his or her checkbook and make a donation to your nonprofit.

To make it more effective, personalize the case statement. Sometimes this is called seeking a "poster child" for the organization. The giving decision is ultimately based on emotion, not on pure reason alone. Accordingly, you want to put a face on the organization's beneficiaries. An after-school program will help a young woman avoid trouble, a dental program will help children have healthy teeth and gums, a homeless shelter will keep families out of the rain and cold. And so forth. Paint a picture with realistic people (or animals) receiving important benefits. That makes the case personal, as opposed to impersonal. It also makes it more exciting.

Who writes the case statement? Ideally, your stakeholders will all play a role. To save time and concentrate efforts, start with the board members and the executive director, who will be the primary askers. Sketch out a rough case statement and then ask for constructive criticism from other stakeholders, including employees, clients, early donors, and friends. Each group will have valuable suggestions. Ask for ideas on a poster child-and keep in mind that in advertising agencies the first few ideas are tossed out on the theory that early ideas are generally weak. If they indeed have value, that is, if they communicate the spirit and urgency of the program or service, those ideas will resurface.

Another dimension of revising the case statement involves aiming at your target. You will naturally slant the statement toward the people you are wooing. This does not mean that the case statement is entirely plastic: most of it will be constant. You will just emphasize facts and numbers to the analytically inclined, the emotional tugs to the sensitive, the prestige of donating to those who need reassurance that they will be joining a select group. This is not cynical, by the way. It is just smart selling.

Target Marketing

Step 2: Target Marketing
Target marketing, thoughtfully identifying the most likely potential donors, is one of the keys to successful fundraising. What is target marketing? Think of a target. At its center is a bull's-eye, surrounded by concentric bands that are successively further from the center. You aim for the center, the bull's-eye, where you gain the most points. If you are a bit off, you hit the first ring, which will give you fewer points.

Now think of your limited marketing dollars as a quiver of arrows. All fundraising has monetary costs. How can you maximize the return on your investment? Simple: aim carefully. Go for the biggest payoff, the bull's-eye. With practice you'll improve your aim.

Start with your board and their contacts. These usually will include the earliest donors and people like them. Following well-proven marketing techniques, your chances of successful fundraising starts with people who have already given to your organization, followed closely by those who have already donated to a similar cause. You want to grow the bull's-eye by turning people from potential donors to actual donors. Or, put another way, you want to foster a relationship with more and more individuals. Your staff, friends, and other stakeholders will help you identify more potential donors. Ask for referrals (this is what all salespeople do) and follow up. Slowly, step by step, this will yield a stable base of donors. And, if you are smart, you can begin to cultivate those donors who can make major contributions.

The same process applies when seeking funds from corporations, philanthropies, and/or government agencies. You look for the early donors and cultivate them; then you look for more people like them and repeat the process. An important corollary: corporations, philanthropies, and government agencies don't make the decision to give money. It's individuals in those organizations who make the decisions, and you have to carefully nurture your relationship with those individuals. In a very real sense, all giving is individual.

Step 3: Start with Individual Solicitations
Getting funds for a new nonprofit is very similar to getting funds for a new for-profit venture. Traditionally you begin by investing your own assets. Then you turn to the three Fs: family, friends and fools.

Family and friends have an obvious, natural reason to invest in your new venture. If your idea is as good as you think it is, then you are doing your family and friends a favor by allowing them to invest in your start-up.

Fools are persons who think you have a good business idea with a real shot at success. The label of "fools" may sound harsh, but the success rate of new ventures, relative to other, less risky investments, is dismal.

Take the same approach with your nonprofit. First, if you're not willing to invest in your nonprofit, why should anybody else? Second, if the case for the nonprofit is compelling to you, it probably will also be appealing to your family and friends. The third group of startup nonprofit investors might be fanatics (not fools) who see the same social benefit that drives your ideas.

What you cannot do is hope to attract bank funds (banks have a role to play later, once you have a track record) or philanthropic and grant funds. These organizations aren't interested in start-ups.

Part of your job as a fundraiser is to identify those persons and organizations likely to be interested in the programs and services that you offer. Asking people for a donation to a nonprofit that has no interest to them is folly. Targeting a small number of potential donors is an efficient way to focus your efforts.

Personalized Appeals to Core Supporters
Make personalized appeals to your core supporters. The most efficient method of reaching your core supporters is by visiting them individually. You may do this alone or, more commonly, a board member and the executive director may make the visit.

Before you go, rehearse what you plan to do. What will you say? How large a contribution will you solicit? What kind of supporting material will you take along?

The beauty of a personal visit is that you will be forming a relationship with the individual. You can tailor your presentation based on his or her response. Ask for referrals. Ask for a critique of your solicitation. You are speaking to persons who have already made a commitment to your nonprofit, so asking them for money is not an imposition. While you might feel awkward the first few times you go out to raise funds on a personal basis, that feeling will soon wear off and you may even find that you enjoy the process.

Why rehearse? Simple: winging it won't work for most of us. By having a script that you can fall back on, including an ask level, you develop a consistent approach that you can improve. One suggestion is to make a list of the 100 (or 50 or 25) persons you target for an individual visit and then roughly rank them in terms of their potential value to your organization. Some ranking criteria: potential donation, strength as a referral source, position in community, political or other position. Then visit the list in reverse order, starting with people you rank lowest. The idea is that by the time you get partway through the list you will have honed your presentations and learned the major objections and how to deal with them and you will know what works best. That will concentrate your best efforts on the best prospects.

Individual personalized visiting is a great source of unrestricted funds to cover the unglamorous but vital overhead expenses. It is also a way to pave the way for planned giving and other capital raising efforts.

Make sure to ask-and ask again. A visit without an ask is a waste of everybody's time.

Annual Fund Appeals and Benefits

Annual Fund Appeals
Most nonprofits conduct annual fund appeals in which they invite their stakeholders and other potential supporters to each make a small donation to cover the expenses of running the organization. These are appeals for unrestricted funds.

Most appeals rely on mail to deliver a series of requests for money. One or two letters won't break through the clutter of mail the recipients are receiving. Some experts call for as many as eight or even more mailings. The incremental costs (using a mass mailing permit) are small for each additional mailing.

The key here is to have a clean mailing list. Do not purchase or rent a mailing list unless you have money to burn. Instead, compile your own list, starting once more with current and past supporters and stakeholders, paying particular emphasis to those persons who have benefited from your programs and services. A compiled list is built around people who have expressed an interest in what you are trying to accomplish. These are selected people, already qualified.

Phonathons are another way to conduct an annual appeal. The same list qualifications apply: make sure the people on the list are involved in some way with your organization. "Blind" calls are seldom productive for non-profits and may indeed stir up resentment.

If you decide on a phonathon, prepare a script for every caller to follow. This facilitates data collection and will help your organization improve results in the future. Hire a professional to prepare the script. The difference between the results of a good professional script and the results of an amateur effort will astound you. In most cases a good script will pay for itself.

E-mail is an increasingly popular fundraising method. Once again, the results depend on the quality of the list. Advantages of e-mail include cost (very low), information transfer (very high if properly prepared), ease of collecting information (high), and flexibility. You can make changes very easily.

If you can, sample a small number of prospects before rolling out a full mailing, phone calling, or e-mailing. These forms of direct mass marketing have a logic all of their own, and small changes can lead to big differences in results. Accordingly, most nonprofits try to get direct marketing expertise on their boards or, failing that, rely on outside advisors to help develop the mailing package (cover letter, pamphlet or collateral, response device), the script and record, the e-mail, or the Web site. This is too important to be left to learn-it-yourself efforts.

Special Events and Benefits
Even a prospective nonprofit can run a successful fundraising event. It might be a cocktail party, a tea, a golf tournament, a famous speaker, a dinner dance, an auction, a day out on a yacht.. The possibilities are almost endless. As with any fundraising effort, start with a goal in mind. How much cash do you hope to gain (net of expenses)? How many people must you attract to have a shot at reaching that goal? If holding a successful special event were easy, there would be many more of them. Unfortunately, there are plenty of fundraising events that don't come close to meeting expenses.

Marketing is as important as raising money. Think about it. Most benefits have two goals: raising awareness of the nonprofit's mission and raising money. In some cases raising money is considered secondary, especially if the nonprofit is new and unfamiliar. A successful event will elevate awareness of the organization.

How do you plan for a successful event? Start with the goal: unrestricted cash and/or marketing goals. Then ask these questions:

  • Are there timing issues? Well-established conflicting events can be a damper on your efforts. At times there seem to be golf tournaments or auctions every day.
  • Who will be on the guest list? Think target marketing. You will want to invite your core supporters, your stakeholders, potential donors, and perhaps some community leaders. The event must be tailored to their schedules and desires-and if you try to reach too many people, you almost guarantee failure. Keep it simple.
  • What will you ask for? Donations, true. But other asks are important: recruiting new board members, advisory board members, referrals. Simply getting to know more people is valuable; the more friends you can make for your nonprofit, the better.
  • Should there be an entry fee? That depends on the event and the crowd. This is a judgment call. If you do ask for a donation, think carefully about how much (or little) to ask. If your audience is well-heeled, ask high. If not, ask low or don't ask at all.
  • What is the budget for the event? A budget is vital: expenses can easily get out of control. The budgeted costs will affect what you ask for. Plan ahead on the financial front and prevent unnecessary losses.
  • Can you solicit in-kind gifts? Perhaps a caterer will provide services at cost or a facility will waive charges. You have to ask for this kind of donation; if you do not ask, you will not receive.

Memberships
Memberships provide another source of unrestricted funds. Many well-known nonprofits are purely memberships: Lions, Kiwanis, Rotary, and so on. Some religious groups are quasi-membership organizations. Some non-profits are barred from offering memberships due to the terms of their major funders, while others find that the added burden of keeping members happy is not worth the effort. However, if your nonprofit can easily provide basic membership benefits (newsletters, lowered fees for events, preferred treatment of some kind), it's worth considering, since membership income tends to be very stable over time.

Planned Giving
Especially helpful for capital funds and endowments, planned giving is a long-term effort that begins with establishing and nurturing a relationship with the prospective giver. Methods can range from providing financial planning services (use a professional) to a group, encouraging inclusion of the nonprofit in wills, and using life insurance or greatly appreciated stock to fund a major gift (with consequent tax savings) to more sophisticated methods that are beyond the scope of all but the largest nonprofits. As always, the better you know the prospects, the greater the chances of success.

Foundations and Grants

Step 4: Foundations and Other Funding Sources
There are over 30,000 charitable foundations. They represent a rich source of funds for nonprofits-usually for restricted funds for specific programs or services, less often for unrestricted operating funds.

How do you get funded by one of these? The same way as you get funding from individuals. You have to know what you are seeking, do research on foundations that might be interested in what you are doing, and establish a relationship with people in those organizations who make funding decisions (remember that organizations don't make decisions, people do). Then and only then can you sensibly ask for funds.

Foundations, whether public or private, are very explicit in their interests. You can research them via the Internet, go to the library, or (more efficient) ask your peers and the helpful people at the United Way for guidance.

Local charitable foundations serve local nonprofit needs. Community foundations are very approachable and are a major source of funds for capacity building, which is jargon for helping small nonprofits acquire skills (planning, grant writing, negotiating, board training, and so on). If your nonprofit would benefit from a strategic planning retreat, for example, your community foundation (or other local foundation) might be willing to pay for a facilitator to help with the strategic planning process. Make the relationship, get clear on your needs, and ask for their assistance. Even if they say no, they will go out of their way to explain why, how you can improve your chances, and let you in on their grant cycles (timing is important) and decision criteria.

The big independent foundations (Ford, Gates, Rockefeller, and so on) are not likely to give money to small nonprofits. Unless you have a really big idea that fits their stated criteria, don't bother-and even if you do, the chances are slim.

Corporations and other businesses have charitable wings, usually under the aegis of community or public relations. Some are targeted frequently: banks, financial service companies, law firms, utilities, and medical businesses are besieged by requests. Ask them what their donation criteria are. If you fit them, great, but if you do not, don't waste your time or theirs. What they may be willing to provide even to a brand new nonprofit is used furniture and equipment. They also are a great source of board members. Some companies even require junior officers to be active in local nonprofits as part of their training.

The United Way and other federated fund drives operate on a local level. They are major trainers for nonprofit boards and staff as well as substantial funders. However, in recent years their trend has been to concentrate on a few broad areas (medical and dental, homelessness, and early childhood education are favorite areas of interest), so they are less apt to provide direct funding. Ask them. You have to get to know them very well, because they act as a clearinghouse for nonprofit information and referral.

Service clubs such as Rotary, Elks, Lions, and many others have a strong local presence. They have been known to adopt small nonprofits, steering funds and raising awareness as part of their service duties. They also provide a great venue to speak, allowing you to reach business and community leaders in a favorable environment. Chambers of Commerce provide great speaking venues, though not a funding source.

Public funding sources include federal, state, and local agencies. The good thing is that they provide a lot of money. The bad thing is that even if you are able to secure a grant, a contract, or a direct-purchase/fee-for-service deal with a government agency, the paperwork and the oversight can be very burdensome. (Fair enough; it's public money.)

Step 5: Getting GrantsUnless you have grant-writing experience, hire a pro to help out. You can learn by doing, to be sure, but it will take far longer than you can probably afford. There are literally thousands of books on grant writing, but working with a pro will speed you up the learning curve, give you insights into the process from both the grantor and the grantee sides, and markedly increase your chances of getting funded.

You should also look for local grant-writing seminars. This is a strong point of your local United Way-the staff benefits by eventually receiving well-thought-out grant proposals and saves time by helping nonprofits learn not to submit long-shot proposals.

Start by deciding which funding sources to target. A minimal requirement is a close fit between your needs and their interests. Sometimes foundations issue requests for proposals (RFPs), stating their interest in funding some specific area of interest. You propose (following their guidelines, which they will provide) and they dispose.

There is a danger: twisting your mission to fit their requirements on the theory that some money, any money, will be helpful and, after all, it's pretty close to your mission.... Beware of mission creep. It is insidious. While you might get some funds, in the long run it will cost your nonprofit credibility.

Return to your case statement. Slant it to the selected funder's requirements. Good grant writers can do this in their sleep.

Document the need for the services and programs you provide. Make it clear that you will avoid duplicating the efforts of other nonprofits in the area.

Get to know the funders. They will work with you. You want to establish a long-term relationship with both individuals and the foundation itself; this is a relationship that must be nourished.

Remember that the foundations make a point of being clear in their directions to potential recipients of their funds. Your hardest job is making sure that you follow their instructions. Once again, make it easy on yourself by working with a professional grant writer until you feel confident in your ability to successfully apply for grant monies.

To read more about starting and running a nonprofit business, buy Nonprofits Made Easy from our bookstore.