Nonprofit Fundraising Methods: An Overview

Raising money for a charitable or nonprofit organization can be a challenge, whether in good times or bad. But you can make it easier by learning about the various methods of fundraising, and choosing those that are truly best suited to your charitable organization.

No matter what, try not to rely on only one type of fundraising, especially if it means depending on sources that could dry up all at once, such as government or foundation grants. By the same token, scattering your efforts and trying every type of fundraising method simultaneously can lead to trouble. The wise nonprofit will carefully plan an array of fundraising methods to employ in the coming one to five years, based on its internal strengths and assets.

Here's a look at the different types of nonprofit fundraising methods and when they're best used.

Attracting Individual Support and Donations

Ideally, the everyday people who believe in your organization's work should be its bread and butter. (The exception is if your organization's work is so technical or otherwise hard for the average person to understand or sympathize with that only government or foundations are likely to support it.) Their donations are a sign of community relevance and support and (conveniently enough) come with few strings attached. And their combined power can help you weather difficult times; for example, if you lose a major grant.

Most organizations reach out to individual donors through a combination of direct mail appeals, newsletters, social networking, and special events. It's also important to cultivate—that is, develop relationships and maintain connections with—your donors. Once you get new donors, work to strengthen their engagement with your work. This often leads to sustained or higher gifts.

A nonprofit can solicit many types of individual donations, whether in the form of cash, pledges, stock in a company, property (real estate and personal), and more. And assuming your organization is a tax-exempt 501(c)(3), donors can take a tax deduction in return (if they itemize, which most taxpayers currently don't, owing to the high standard deduction).

Soliciting Gifts From Major Donors

A certain number of individual donors will be sufficiently interested and financially able to make major gifts—potentially in the thousands of dollars and up. However, such gifts won't usually come in response to the same sort of outreach used to reach most individual donors.

The nonprofit's executive and development team will need to concentrate on developing genuine personal relationships with potential major donors. Traditionally, requests for large gifts are made during a formal meeting, in which one or two people from the organization's staff approach the donor with a compelling case for support (and, if appropriate, mention how the donor will be recognized for the gift).

Other methods of attracting high-end gifts include planning special tours and trips, and holding house parties, luxury auctions, or other events.

Holding a Capital Campaign

While also primarily focused on individual donors, a capital campaign happens outside a nonprofit's regular, annual fundraising program. It's typically a coordinated effort to raise a large sum of money for a particular project or goal, such as a new building or an endowment fund. It might involve teams of volunteers, with specific outreach goals.

Promoting Legacy Gifts or Planned Giving

Once a nonprofit is established enough to assure its donors that it will be around for years to come, it can start encouraging them to leave gifts via their estate, most likely through a will, trust, or other beneficiary designation. (To learn more, read Inheritance or Legacy Gifts: How Your Nonprofit Can Encourage Them.)

Though some donors take care of this on their own initiative (more and more of them, since the start of the pandemic), the nonprofit can support such plans by offering information, perhaps in publications, seminars, and personal meetings.

This should cover how such gifts will be put to a meaningful, lasting purpose. It's good to be able to assure donors that their final act of goodwill shall benefit something more exciting than the office supply or coffee fund. A simple reminder in your newsletter that leaving a gift in a will is a great way to create a personal legacy is a good start, especially if you can point to a compelling way in which the money might be spent, such as planting a tree.

Any nonprofit can solicit basic estate gifts, but more sophisticated organizations can also offer more complex giving vehicles, such as charitable annuities and charitable remainder unitrusts. The basic idea is that donors give assets to the organization for investment, but either continue to derive some income from the investments during their lifetime (assuming the stock market hasn't completely flatlined) or give the organization the income and require that the principal ultimately be returned to the donor or heirs. The donor gets tax benefits, and the nonprofit gets an immediate source of income.

Holding Special Events

Almost every nonprofit, big or small, holds a special event or two each year, whether it's an impromptu garage sale, a gala annual dinner, or (since the start of the COVID pandemic) a virtual or hybrid lecture, auction, or other gathering. Events can be a fun way to mobilize volunteers who aren't otherwise interested in fundraising.

But the bigger the event, the greater the risk of it turning into a time-sink and financial flop. Still, events can serve purposes other than straight fundraising, namely to raise the organization's visibility and bring in new members. The key is to identify the main purpose of the event (for example, is it a friend-raiser or a fundraiser?) and then plan with that in mind.

Ticket sales are unlikely to cover the entire event cost, so you'll need to augment the income by finding event sponsors and incorporating other methods of fundraising within the event, such as raffles, T-shirt sales, or an auction.

Raising Money From Business or Sales

Some nonprofits enter the world of business and sell goods or services to regular (or charitably minded) consumers. This can encompass anything from kids selling cookies to museums running gift shops to organizations providing their own clients with job training, perhaps in bicycle repair or Web design.

It's important to remember that a nonprofit is a business and is itself allowed to make a profit, so long as it doesn't use those for the personal benefit of those in charge. But running a separate business within your organization does have tax implications and could lead to having to pay tax on the earnings or, in a worst-case scenario, losing nonprofit status. (For more information, read Tax Concerns When Your Nonprofit Corporation Earns Money.)

When it works, business activities can provide a source of income with almost no strings attached; no foundation reporting requirements or donor wishes to worry about. But launching a business can be a risky proposition even in the for-profit world, so it's best to start small or online-only, get good advice, and be realistic.

Applying for Foundation Grants

Nonprofits are entitled to seek grants from foundations; that is fellow nonprofits, often started by wealthy families or corporations, that give out money for specific charitable purposes of their choosing. The grant is usually for a specific amount of money, either paid in advance or on a reimbursement basis.

The best thing about grants is that they're usually for a reasonably large sum of money, which can enable a nonprofit to, for instance, start a new project or hire a new staff person. The worst thing about grants is that they don't come with any guarantee of renewal. In fact, many foundations prefer to move on to the next new thing and expect your group to use the grant as leverage with which to increase other forms of support. Grants also tend to come with stringent oversight and reporting requirements.

To apply for a grant, an organization can make use of research tools provided by groups like Candid. Application procedures are usually spelled out by each individual foundation. Be sure that your group or project really fits the foundation's eligibility requirements. A common complaint made by foundation grantmakers is that nonprofits submit inappropriate proposals.

Applying for Government Grants

Another source of grant funding is local, state, and federal government agencies. These grant amounts are often high, so that some nonprofits subsist almost entirely on government money. And being able to attract and keep government grants gives your group stature and credibility, thus helping you attract other funds.

The downside is the often overwhelming application requirements. Expect mounds of paperwork and requirements such as forming oversight committees. Also, government funders tend to be risk averse, preferring established nonprofits with proven records of success to new grassroots initiatives.

Requesting Corporate Gifts

The business sector, sometimes in an effort to boost its public image, is also a potential source of nonprofit funding. The largest gifts are typically available through corporate foundations, as described above. However, you might also be able to approach smaller businesses for donations, both cash and in-kind, as well as for sponsorships, say, of a team or event.

In-kind donations come in handy when you're planning a raffle, auction, or meal event. A local business might contribute such goods as flowers, wine, food, jewelry, clothing, other gifts, tickets for travel or cultural or sporting events, a night's stay at a hotel, services from a spa or salon, and so on. Businesses can also lend you needed equipment for an event, such as tablecloths and wine glasses.

Also look into getting volunteer help from local businesses' staff. For example, a local restaurant might lend you a cook or bartender for an evening.

Find out each business's specific procedures, and whether there's a person dedicated to working with charities, before making your pitch. And be sure to give the businesses lots of return recognition (but not outright advertising, which could complicate matters tax-wise).