How to Create a Sustainable Nonprofit Business Model; Part 1
Our team spends a lot of time thinking about how to help nonprofits be more sustainable. In fact, it’s fair to say that it’s all we do. We do this by taking care of a lot of the strategic steps along the path to sustainability — strategic plans, fundraising strategies, capital campaigns, marketing and communications strategies, and more.
Ultimately, we’re here to help nonprofits move from where they are today to a day achieve the status of a sustainable nonprofit so that they are fully realizing their mission
That’s why, over the next several months, we’ll share a series of articles on organizational sustainability, unearthing the key components necessary for long-term viability and mission impact. Our goal with these articles is to help you identify and stitch together these important variables.
In Part 1 of our series, we start with the cornerstone of any thriving nonprofit—your Nonprofit Business Model.
A Nonprofit Business Model? Yep, You Heard Right!
As Peter Spence writes in The CFO, “A business model explains how a business solves a problem or fulfills a need or want that customers are prepared to pay enough for to enable it to make money.” Your operating model, on the other hand, consists of the systems and processes that allow the work to get done. In nonprofit parlance, a business model shows you how to meet your mission and address a community need that donors are willing to support financially.
4 Components of a Healthy Nonprofit Business Model
A healthy business model has four essential components. To develop your own model, ask yourself these guiding questions.
1. What Does Your Nonprofit Do Better Than Any Other Organization?
Every nonprofit organization needs a value proposition; a value it provides to its clients, funders, and other stakeholders that’s truly unique.
A value proposition must be wholly aligned with the organization’s mission. It explains how an organization’s programs and services meet the mission in a way that no other nonprofit can.
The foundation of your business model should center around your value proposition and serve as a guiding light as you develop the rest of your model.
In our experience, most nonprofit professionals excel at understanding their value proposition, but it’s good to reinvestigate it occasionally to address changing needs in the sector.
2. What Are Your Organization’s Revenue Streams?
There was a time when donor dollars were enough to support a nonprofit’s activities. But for most organizations, those days are long gone. Today, diversification, which means multiple income streams, is the name of the game.
As you reflect on your revenue streams, are you overly reliant on one or two? If so, what are some new revenue paths your organization can explore? For example, one Beam Consulting client receives a significant source of public funding that relies on the goodwill and ongoing support of local politicians. In our constantly changing political climate, this is a risky income source. To balance this risk, the organization has begun expanding its private philanthropy efforts.
3. Is Your Budget Too Small, Too Big, or Just Right?
I’ve never met a nonprofit leader who said their budget was too big! However, it's crucial to question whether your budget meets your needs. To be sustainable, nonprofits need a system to manage operating costs, including fixed and variable expenses.
Maintaining a lean budget is great — until it’s not. A budget that’s too small will eventually hold you back from generating enough profit to reinvest in the organization. Of course, reducing wasteful spending and improving cost-effectiveness are key. But you also don’t want to restrict your ability to generate the income needed to pay employees well, steward donor relationships, navigate unexpected expenses, and maintain cash on hand.
Finding the balance and creating a budget that’s ‘just right’ will go a long way in your pursuit of a sustainable organization and set you up for future health and success.
4. Is Your Business Model Scalable and Adaptable?
A cornerstone of sustainability is the ability to adapt. Your nonprofit needs to be able to grow and adapt to inevitable changes in your community while still maintaining its impact.
This comes down to your ability to develop programs that are both innovative and flexible.
Whether you determine you need to create new programs or modify existing ones (or both!), do so with an eye toward scaling them or replicating them in different contexts. It’s also essential to evaluate each program from time-to-time to make sure they’re still as impactful as they once were.
The book Nonprofit Sustainability is an excellent resource for evaluating programs for mission impact and financial viability. I highly recommend that every nonprofit leader give it a read.
Creating a Sustainable Nonprofit Business Model Now Will Pay Dividends in the Long Run
By now, we hope you agree that nonprofits need business models. And establishing your business model is an absolute must in order to safeguard the future of your organization and the important work you do for your community.
We’re excited to dive deeper into sustainable nonprofit business models in our next article. As you begin to evaluate your own business model, let us know what challenges you’re facing or what gaps you’re trying to fill. We love talking about all things nonprofit leadership and are always here to help!
Dani
About The Author
For the past 25 years, Dani has helped nonprofits at local, regional, and global levels find sustainable solutions to tricky growth and funding issues. She works with leaders and teams to optimize their approach to fundraising, strategic planning, marketing, and more! Dani is passionate about helping motivated people build vibrant and effective nonprofit organizations—so they can make a meaningful impact in the world!