What is the Best Funding for Nonprofit Organizations?

If you're a busy nonprofit leader, choosing which funding sources to pursue can feel like navigating a puzzle without the box, where each piece offers a unique fit and potential. To complete the picture, you need to find the right combination of pieces that align perfectly with your organization's goals and needs.

With so many funding options available, how can you identify the best strategies to help your organization grow and achieve its mission?

In this article, we’ll provide an overview of the most popular funding sources for nonprofits and the pros and cons of each. Understanding the benefits and drawbacks of various funding types will enhance your financial management and help you set more informed goals for the future. 

Let’s dive in!

Galas and Dinners 

Formal fundraising events to showcase your organization’s impact, cast vision, and engage new and existing donors. 

Pros

• An incredible platform to showcase your organization’s impact.
• You can invite people into getting involved in more ways than financial.
• Opportunity for corporations to buy into your mission as a community sponsor.

Cons

• Substantial upfront costs. Most venues will require a security deposit upon booking, and later require half the food and beverage fee before the event. Not to mention the cost of marketing materials (save the date mailers, formal invitations, and any upgrades you make to promote the event online).
• Significant time and resource demands on your staff, on top of their already full schedules.
• Event fatigue. Many financial partners get invited to numerous fundraising events every year and may not attend yours because of it.

Silent Auctions

The offering of donated items for bid (public or confidential), raising funds for your organization, typically at an existing dinner event or online.

Pros

• Fosters strong community engagement and buy-in before the event.
• Adds an element of fun and excitement to the event itself.
• Provides an opportunity to engage and activate new donors. 

Cons

• Requires significant staff time and planning to procure auction items.
• Difficult to obtain larger items, often resulting in smaller donation margins compared to fundraising goals.
• Bidding on items can reduce donors' willingness to participate in other giving opportunities.

Grants

Financial awards (from governments, corporations, and foundations) gifted to nonprofits to support the advancement of their mission.

Pros

• Continually available, with over $100 billion in funding given to nonprofits nationwide and incredible databases to find them.
• Expand organizational capacity and impact to sustain programming. 
• Produces strong outcomes measurements and increases organizational credibility. 

Cons

• Requires significant amount of staff bandwidth to develop and maintain an effective grant strategy.
• Grants are competitive; the average success rate is between 10 and 30%.
• Can unintentionally drive mission creep and create a desire to over-reach for funding. 

You might notice that the “cons” of Grants are surmountable. Later in this article, I’ll overview why they’re the best fundraising option and where to find them. 

Corporate Sponsorship

Businesses giving financial donations to nonprofits with shared community values, often in exchange for positive public exposure.

Pros

• Corporations like to get their employees involved in front-lines work; volunteers often follow financial partnership. 
• Strengthened community awareness and credibility are nearly inevitable, both of which bring positive attention to your organization’s great work. 
• You can search by state through this corporate funder database, making it easy to filter through thousands of corporate foundations. 

Cons

• Can be extremely difficult to secure funding and often driven by relationships. 
• Corporations tend to have a focus on long-term engagement and can create dependency issues if your nonprofit doesn’t persist in diversifying funding. 
• Publicly accepting corporate sponsorship can imply endorsement of the corporation, even if the nonprofit's values don't fully align with those of the sponsor. Be aware: aligning with funding priorities doesn't guarantee shared organizational values. 

Benefit Concerts/Performances/Ticketed Events

Leveraging entertainment for fundraising while increasing organizational awareness.

Pros

• Excellent for raising awareness of a new program or initiative, ideal for one-time events.
• Can introduce your organization to a new audience or demographic.
• When well-executed, can be a significant revenue source.

Cons

• Requires highly complex logistical planning, even more so than dinners and galas.
• Challenging to surpass previous events each year.
• Higher potential revenue often comes with higher upfront costs.

Program/Service Fees

Revenue generation for charges nonprofits impose for services or programs offered. 

Pros

• Provides a sustainable revenue stream, extending the financial runway.
• Enables program expansion by allocating new funding to enhance services.
• Consistent, predictable funding facilitates long-term, vision-driven financial planning.

Cons

• Can lead to internal complacency, stifling creativity and slowing growth.
• Increases administrative workload due to the complexities of billing and fee allocation.
• Introducing fees positions your mission-driven organization in competition with others in the marketplace. 

Membership Fees

Revenue collected from individuals and/or organizations in exchange for benefits and/or access to your organization’s initiatives and programming.  

Pros

• Members invested in your organization receive exclusive access to programs and initiatives, enhancing engagement and loyalty.
• Implementing membership fees can help sustain previously grant-funded programs, providing a path towards financial sustainability.
• Creating exclusive membership options fosters a sense of community and belonging, strengthening your support base.

Cons

• Similar to service fees, membership fees increase the administrative workload, requiring additional staff and resources to manage.
• Introducing membership fees can shift the focus from mission-driven objectives to revenue generation, potentially altering the organization’s core direction.
• Membership fees may create barriers for low-income individuals, limiting access and inclusivity. 

Social Enterprise Models

Strategies that integrate revenue-generating business activities with a social mission to create sustainable impact and financial stability.

 Pros

• Reduces reliance on donations and grants, providing a more sustainable revenue stream.
• Utilizes business strategies to capitalize on niche market opportunities, enhancing operational efficiency.
• Creates jobs and economic opportunities, often breaking down employment barriers for the people the organization serves.

Cons

• Competes with other products in the open market, presenting high risk and potential high reward.
• Requires significant capital to launch, adopting a start-up mentality that can lead to employee burnout.
• Demands different management skills compared to traditional nonprofit operations, requiring adaptive leadership and advanced logistical expertise.

Earned Income Revenue From Products

Income generated through the sale of products or services related to your organization’s mission.

Pros

• Products offer significant exposure, raising awareness and creating ambassadors for your cause.
• Selling products can create jobs, potentially employing the very people your organization serves.
• Even with inconsistent sales, product revenue allows for financial forecasting, enabling conservative or aggressive planning based on risk tolerance.

Cons

• Entering the sales market requires vigilance to avoid mission drift and ensure alignment with organizational values.
• Effective sales require ongoing marketing efforts, leading to higher operational costs and financial forecasting demands compared to donor prospecting and grant planning.
• Nonprofits may lack expertise in operations, logistics, and supply chain management, which are crucial for generating significant revenue from product sales.

Range of Grant Amounts

The great thing about grants is that they come in all sorts of shapes and sizes, allowing you to tailor your strategy to the needs of your organization in a given year. This flexibility makes it easier to address immediate priorities and long-term goals and can be adapted year-to-year based on other incoming revenue.  

Overall, grants are a great building block for continuous improvement and scaling sustainable growth. 

Strategic Planning

Grants not only provide financial stability but also create valuable margin for strategic planning and vision-casting, ensuring your mission is not solely contingent on available funds. 

Grants empower your team to:

• Plan Diligently: General Eisenhower, before he became President, famously noted that planning is everything, but plans mean nothing. Deciding to pursue grant funding is about committing to a well-thought-out plan. As Eisenhower emphasized, the value lies in the planning process itself, which prepares your organization for success and helps you consider financial contingency plans if a proposal is initially unsuccessful.

• Execute Effectively: This works in two ways. First, writing a strong proposal requires strategic planning to ensure effective program delivery. Second, securing funding allows you to focus on front-line work. This combination significantly benefits your organization by ensuring preparation and execution are well-handled.

• Follow up Thoroughly: Professionals welcome measurement, while amateurs avoid it. Grant funding requires accountability, and evaluating program effectiveness is always beneficial. The double-win here is outcomes evaluations position you even better for your next big proposal. 

Sustained Funding Opportunities 

Grants also offer opportunities for sustained funding through reapplication and renewal. 

Many foundations encourage successful grantees to apply for subsequent funding cycles, allowing nonprofits to build long-term partnerships and secure ongoing financial support. 

This continuity helps stabilize your organization's financial base and simultaneously strengthens its capacity to plan and execute long-term projects. 

Larger Awards and Fewer Fees

In 2023, private foundations contributed an impressive $103 billion to nonprofits, accounting for 18.5% of the total $557.16 billion given to U.S. charities. 

Notably, while building individual relationships is invaluably important, it can be an uphill battle for nonprofit leaders to get connected to community stakeholders that can make substantial investments. 

Grants provide an opportunity to find large-award amounts to undergird programs,projects and initiatives, and with the right personnel, they can produce a wellspring of growth opportunities for your organization.

Searching for grants used to be a time-consuming task, requiring reserving trips to the public library to access a computer with a foundation center subscription. Now, there are blueprints for success at the palm of your hand. Just a few years ago I never imagined conducting grant research from my phone!

Today, you can search for grants without losing valuable time, and according to the pros, there is no better tool than Instrumentl.

There are countless reasons why Instrumentl is the number one grant discovery and management tool, but I’ll briefly highlight my favorite three:

1. Instrumentl allows users to access tailored matching based on funding needs and grant opportunities, essentially “smart matching” your organization to available funding sources.
2. Weekly new match alerts, sent directly to your inbox, save you hours of browsing time. 
3. Friendly user-interface. I cannot overemphasize how clean Instrumentl’s system is. This is a vastly under-valued differentiator. Instrumentl is intuitive and simple, despite the complexities of all it offers. 

If you’re not sure where to begin, this guide will serve you well.

Ultimately, securing the best type of funding for your nonprofit involves navigating various options, each with unique benefits and challenges. 

From galas and silent auctions that enhance community engagement and visibility, to grants that provide substantial, sustainable funding, understanding the pros and cons of each source is crucial. 

Grants, in particular, stand out for their ability to offer large and often renewable funds that significantly boost your organization's credibility and operational capacity.

To maximize your funding potential, it is essential to leverage tools like Instrumentl, which streamline the grant search process, saving valuable time and effort. Start your journey today with Instrumentl’s 14-day free trial to find the best grants tailored to your organization's needs.