Topic 2: Strategies to diversify income

Relying solely on traditional funding sources can pose risks, especially during times of economic uncertainty or shifts in donor priorities. Hence, exploring strategies to diversify income becomes paramount to your organisation aiming to broaden its financial base and reduce dependency on a single funding stream.

In this section, we’ll explore a range of effective strategies designed to diversify income and expand revenue sources for nonprofit organisations. From leveraging innovative fundraising approaches to exploring earned income opportunities and fostering strategic partnerships, we’ll look into actionable insights and best practices to help organisations achieve greater financial stability and flexibility. 

Diversifying income is crucial for nonprofit organisations to enhance financial sustainability and resilience. Here are some strategies to diversify income:

Once you’ve set your targets, develop a strategic action plan to achieve them. Outline specific steps, activities, and timelines for diversifying your funding mix and enhancing total cost recovery. This may include:

• Grant Writing and Fundraising: Allocate resources to prospecting, cultivating donor relationships, and preparing grant proposals to secure funding from diverse sources. If you have limited resources, skills and/or time, consider outsourcing a part of that work to external experts who might be able to do this cheaper than in-house.
• Earned Income Ventures: Remember what we discuss at the beginning of this course about the nature of nonprofits?  Non-profit is a tax status, not a managerial principle. Just because you operate as an NGO, does not mean that all your activities fail to generate a surplus. 
• Attracting Investors:  Maybe some of your programmes could also be businesses. If there is a realistic revenue stream whilst producing good impact and advancing your mission, then you can consider writing a pitch and seeking investors for this impact generating business
• Partnerships and Collaborations: Identify potential partners, collaborators, or sponsors who can provide financial support or in-kind contributions to support your programs and projects. There are donors who provide 100% unrestricted funding, but obviously funding for that is highly competitive.

Explore opportunities to generate revenue through fee-based services, product sales, or social enterprises that align with your organisation’s mission. Bear in mind only that in some territories, you may need to account for any substantial surpluses in a different legal entity. So you may need to open a company next to the NGO. That is not uncommon in the sector.

Remember that financial health requires very good financial reporting and budgeting. 

Example: Setting Targets for a Better Funding Mix with Total Cost Recovery

Let’s go back to that small environmental NGO or department aiming to enhance its funding mix while achieving total cost recovery. After assessing your current funding sources and costs, you identify a need to diversify revenue streams and ensure that all expenses are adequately covered.

Remember you have set your targets previously by :

1. Assess Current Funding Mix and Cost Recovery: Analyse your organisation’s revenue sources and cost recovery rates to identify gaps and opportunities for improvement.
2. Set Specific Targets: Aim to increase individual donations by 20% annually, secure $50,000 in grant funding for new projects, and generate $30,000 in revenue from ecotourism activities within the first year.

Now develop your strategic plan to realise these targets.  This will include writing grant proposals, launching your fundraising campaign and marketing your eco-tourism offer.

In the next section, we take a deeper look at what it might take to attract different types of funding.