Diversification of Revenue Sources
Don’t put all of your eggs in one basket… We know you know to diversify your revenue sources. That is nonprofit leadership 101. But what does that really mean?
Diversification is often defined by making sure you are equally dependent on differing sources, such as individual donors, corporate sponsorships, foundation grants, earned income, and event-based fundraising. We know that this approach not only buffers the organization from vulnerability when one stream falters, but it also encourages adaptability and growth.
A common pitfall is to assume that distributing income among several sources automatically equals safety. In reality, risk can still be concentrated if, within a given stream, revenue comes from only a handful of funders. For example, if an organization receives 25% of its budget from individual donations, but those gifts are contributed by just three donors, the loss of one could be catastrophic. Meaningful diversification involves both variety and depth.
Every organization should begin by mapping its current sources of income.
This exercise involves more than just tallying up revenue percentages per stream; it requires a closer look within each category to assess dependence on particular funders. Key questions include:
What percentage of overall income does each funding stream represent?
Within each stream, how many discrete funders are there?
Is the organization reliant on a limited number of major contributors within any stream?
How stable have these streams and funders proven to be over time?
By answering these questions, organizations can pinpoint where vulnerabilities exist—not only between streams but also within them.
Diversification is both an art and a science.
It involves creativity, relationship-building, and the willingness to explore new opportunities. You must analyze donor data to know exactly where it is coming from.
Review all funders’ portfolios to identify any single source contributing more than 15-20% of total revenue within a specific funding source (like donors, corporate partnerships, grants, etc.).
Proactively seek replacements or supplements to large sponsorships before they end. Getting a large investment is great. Planning to replace it is even greater!
Track grant expiration dates and funding cycles to avoid simultaneous losses and be aware of grant guidelines so you don’t become dependent on a grant that isn’t renewable.
Diversification is an ongoing process, not a one-time exercise.
Economic conditions, donor interests, and societal needs will continue to evolve. Cultivating agility is as essential as cultivating new funding streams. Organizations must regularly review income portfolios, test new approaches, and remain open to innovation.
This process is not a response to a crisis; it is simply good practice that cannot and should not be limited to a moment like this. True diversification requires vigilance, creativity, and a willingness to look beyond traditional sources and relationships. By broadening and deepening revenue streams, organizations can build financial resilience, seize new opportunities, and continue to fulfill their missions.
