Sometimes, a non-profit finds an enthusiastic donor, and then becomes heavily dependent on that donor’s generosity. If that happens, crisis ensues.
A couple of years back, a client of a nonprofit of ours was faced with a funding crisis. They had a budget of one million dollars with a contributor who offered them $150,000 per year. The partnership began with a donation of $25,000 which over 10 years, it grew to $150,000. Naturally there were other sources to pay the remainder of $850,000. Donor Management Software
A few days later, the main contributor announced that they would be going to Florida and the donation he made eight months ago would be the last one. He planned to begin making donations to a similar charity near his retirement residence in Florida.
It’s a time of situation of crisis when you are given 4 months to replenish 15 percent in your savings.
To address this issue it is possible to define the threshold of crisis for financing as 15 percent. This implies that any donor or income source which exceeds 15% would cause them to be in a crisis should the flow of funds stopped. In their instance the threshold for crisis proved to be approximately 8 percent.
We can turn the clock back to three years prior to the crisis. Let’s say that the leaders decided that the threshold for crisis was 8%, and then they discovered the fact that Ms. Big was giving 15 percent. What would they do?
One of the most effective strategies is:
Keep cultivating the character of Mr. Big. He clearly loves the cause and wants to be a part of it’s success.
Request Mr. Big to introduce his acquaintances to the cause. This will increase the number of donors and reduce his share of the total revenue. Furthermore, in the event that there’s a catastrophe that happens to Big. Big, it is possible to request his friends to make a single gift to his behalf. This can lessen or even eliminate the effect of the loss as well as allow the chance to make a replacement for the Mr. Big.
Establish a target for growth in donor numbers. Because the figure of Mr. Big is almost twice the threshold for crisis so a goal of 104 percent increase in income is a good goal. Let’s say that the next budget needs $1 million. A target of 104% implies they need to raise $1,040,000. The extra $40,000 should be put in an account called a reserve. Within 3 or four years the reserve account will be sufficient to absorb losses of Mr. Big until other donors take over.
Find out the amount that have donated and also the amount of the average donation required to lower Mr. Big’s share of income stream to 8.8%. Based on practical considerations, this will require a 5 to 7 year goal.
The aim is to continue building Big Mr. Big while reducing his proportional share to a manageable percentage by fostering the generosity of other sources and donors.
Determine your threshold for crisis
Determine the percentage of your contributors or income sources exceed the threshold
Create a strategy to reduce the source of revenue to less than threshold.
Sustainable financing is the result of continually increasing the variety of income sources as well as the amount of generosity from each source. Being able to sustain your funding requires that one source of income does not ever becomes unsustainable.