We already know why diversification is IMPORTANT 2007 Study Models of SUSTAINABLE IMPACT Models of SUSTAINABLE IMPACT “The Diversification Myth” W W Of the 144 organizations in the elite group, the researchers obtained solid financial data for 110 of them….. HOWEVER… DIVERSIFICATION CONSIDERATIONS EFFECTIVENESS EFFICIENCY TRANSACTIONAL COSTS OPPORTUNITY COSTS CONFLICT OF INTERESTS Question: Given the nature of a particular nonprofit, is it ELIGIBLE to receive funding from a particular source? EFFECTIVENESS Different funding sources present different needs, expectations, or requirements that some nonprofits can’t satisfy. 4 Example A federal agency is not likely to be an effective source for organizations whose activities do not fall within that agency’s set of responsibilities. A foundation is not likely to be an effective source for organizations who do not align with that foundation’s mission. A service fee is not likely to be an effective source for organizations that serve low-income families…it may actually hurt! EFFECTIVENESS Question: Given the nature of a particular nonprofit, is it WORTH IT to pursue funding from a particular source? EFFICIENCY Different funding sources have different amount and rate of payouts depending on the types of nonprofits. Example Foster & Fine (2007): “Federal agencies are most likely to support organizations in medical research, food, and foreign affairs. State and local governments are most likely to support human services, employment development, and education organizations.” 5 Keith J. Libman, (2015) : “Corporations tend to support hunger and health issues while Individuals tend to give to issues that cross socio-economic boundaries, like environmental advocacy.” 6 EFFICIENCY Question: Can a particular nonprofit AFFORD to receive funding from a particular source? TRANSACTIONAL COSTS Different funding sources present different transactional costs, which some nonprofits may not be able to afford. 7 Example Ruth McCambridge, 2014: “A large donor base needs care and feeding, and federal contracts need reporting and compliance [after the funds] and grantwriting of a particular type [before the funds]. Each stream of income has its own transactional costs.” 8 TRANSACTIONAL COSTS Notes VERTICAL Cost-Benefit Analysis: Analyzes the exchange between the funding sources and the nonprofit. Funding Sources Funding Sources NONPROFIT COSTS BENEFITS Notes The more a nonprofit diversifies its funding, the more resources for each additional associated activity are required (e.g., foundation grants require grant writers; federal contracts require compliance officers; fundraising requires event planners). However, some nonprofits don’t have the required resources to pursue a particular funding stream (e.g., understaffed or overworked). Moreover, the costs of acquiring some funder sources may not be worth it. (See “Efficiency”). Question: Is a particular nonprofit choosing the BEST OPTION out of the available funding sources? OPPORTUNITY COSTS Time, money, and manpower spent acquiring one funding source may prevent the acquisition of another. Example Government grants require a lot of time and manpower (before and after), but may present a sizeable return. Foundation grants require little time and manpower, but may only yield a very small return. Fundraising events involve little or no competition—unlike with grants—but requires overhead costs in addition to significant time and manpower. It is also largely dependent on the socioeconomic characteristics of the people and community it serves…which may result in a net loss! Notes HORIZONTAL Cost-Benefit Analysis: Analyzes the differences between the various funding sources available to a particular nonprofit. OPPORTUNITY COSTS Funding Source #1 Funding Source #1 Funding Source #2 Funding Source #2 Funding Source #3 Funding Source #4 Question: Would it be ETHICAL to accept resources from a particular funding source? CONFLICT OF INTEREST Ethical considerations relating to funding sources may limit the available funding sources. Example If a board or executive member has powerful ties with a corporate funder or foundation (e.g., conflicting fiduciary duties). If a funding source is naturally opposed to the mission of the organization (e.g., an oil company funding an environmental nonprofit). If a service recipient wants to donate but lacks the mental or financial capacities to make the proposed donation. CONFLICT OF INTERESTS EXERCISE NONPROFIT SECTORS NONPROFIT SECTORS FUNDING SOURCES IF you were the leader of a religious congregation… 1.Would you diversify? COULD you? 1.Would it be wise to allocate limited development resources to other types of funding, like federal grants? IF you were the CEO of a hospital or nursing home… 1.Which two funding sources would you prioritize over others? 1.How would you allocate your organization’s development resources? ENDNOTES 1. et_really_big#sthash.RiYLeiwd.dpufhttp://ssir.org/articles/entry/how_nonprofits_g et_really_big#sthash.RiYLeiwd.dpuf 2.Ibid. 3.Ibid. 4.Ibid. 5.Ibid. 6. t_funding_matters_revenue_diversification_think _like_a_growing_businesshttp://bmfcpa.com/nonprofit_advisor/nonprofi t_funding_matters_revenue_diversification_think _like_a_growing_business 7. diversify-or-not-to-diversify-that-is-the-question- but-it-s-complicated/ diversify-or-not-to-diversify-that-is-the-question- but-it-s-complicated/ 8.Ibid. 9. profit%20Economy% pdfhttps:// profit%20Economy% pdf