Ten Nonprofit Funding Models

For-profit executives use business models—such as “low-cost provider” or “the razor and the razor blade"—as a shorthand way to describe and understand the way companies are built and sustained. Nonprofit executives, to their detriment, are not as explicit about their funding models and have not had an equivalent lexicon—until now.

BENEFICIARIES ARE NOT CUSTOMERS 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 (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.

TEN FUNDING MODELS Devising a framework for nonprofit funding presents challenges. To be useful, the models cannot be too general or too specific. For example, a community health clinic serving patients covered by Medicaid and a nonprofit doing development work supported by the U.S. Agency for International Development are both government funded, yet the type of funding they get, and the decision makers controlling the funding, are very different. Lumping the two together in the same model would not be useful. At the same time, designating a separate model for nonprofits that receive Title I SES funds, for example, is too narrow to be useful.

1. HEARTFELT CONNECTOR

2. BENEFICIARY BUILDER

3. MEMBER MOTIVATOR

4. BIG BETTOR

5. PUBLIC PROVIDER

6. POLICY INNOVATOR

7. BENEFICIARY BROKER

8. RESOURCE RECYCLER

9. MARKET MAKER

10. LOCAL NATIONALIZER

IMPLICATIONS FOR NONPROFITS In the current economic climate it is tempting for nonprofit leaders to seek money wherever they can find it, causing some nonprofits to veer off course. That would be a mistake. During tough times it is more important than ever for nonprofit leaders to examine their funding strategy closely and to be disciplined about the way that they raise money. We hope that this article provides a framework for nonprofit leaders to do just that.

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