Why Diversify?

By Tiona Brady, CFRM

Glad you asked…Diversification of revenue streams can provide several advantages for nonprofits. Examples of such streams include government, program services fees, and charitable donations from corporations, individuals, and foundations.

For small-to-mid sized nonprofits (revenues up to $10M), one primary importance is the ability to be flexible and mitigate risk, especially in the event that external circumstances cause one revenue stream to dry out.  And given that certain revenue streams, (such as government contracts and most foundation grants) come with restrictions, having options ensures greater autonomy.

There are also cases where diversifying revenue streams may not be the best option. Large nonprofits (revenues up to $50M) for example, often exert their efforts on one dominant revenue type. Some large nonprofits mitigate the risk of relying on one revenue stream by sourcing many different funders per revenue stream.

Nonprofits can also diversify their online fundraising and take advantage of trends in online donations and individual giving. Your organization might consider hosting virtual events, creating time-bound campaigns, setting up monthly donation programs and leveraging corporate partnerships, to name a few. 

Whatever management decides is best for the organization and how best to diversify its revenue streams, it’s very important to assess the pros and cons of introducing a new source of funding and ensure that the organization has a well-equipped team to effectively and efficiently manage it.

Tiona Brady is Executive Director of the Alameda County Library Foundation

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