Take the Risk Assessment Quiz
Learn how to reduce overdependence on major funders by treating donor concentration as a strategic risk and building a broader, more reliable base of support.
How can nonprofits build a broader, more resilient donor base and avoid overdependence on a few funders? Here are some practical strategies, considering current realities.
Acknowledge that relying on one or two funders is a significant strategic risk. Be sure to keep this risk in mind and make it a priority to monitor closely. Using a framework like our Foundations for Growth (FFG), engage your team in a risk inventory and add donor concentration to your risk register. Quantify it (e.g., “X% of revenue comes from our top 3 donors”) and assign an internal champion to monitor it. By making this risk clear, you indicate that diversifying revenue is a priority, not merely a concern for the development team.
Integrate donor diversification into your strategic planning. Our Lean Strategic Planning approach is particularly effective in this area. It emphasizes agile, real-time strategy rather than a static plan on a shelf. Set a strategic objective to broaden the donor base (for example, “Within 2 years, no single donor accounts for more than 15% of the budget”). Brainstorm early warning indicators: What signs would tell you a donor is about to exit, or that your donor acquisition is stalling? Align your team and board around these indicators so you can adapt quickly if trends change. Regularly review progress in diversifying funding at board meetings. Lean planning keeps everyone focused on the goal of resilience, balancing ambitious fundraising targets with contingency plans if a major gift doesn’t come through.
It’s tempting in lean times to chase only the biggest checks, but resist that short-term temptation. A broad base of many small donors makes you more resilient than a funding model built on a few big donors. Devote time and budget to engaging everyday supporters. This means robust donor communications, impact stories, and gratitude for gifts of all sizes. Celebrate the $20 monthly donor as much as the $200,000 annual donor. Small donors who give regularly demonstrate real passion for your cause, and their cumulative impact adds up over time.
Strengthen your annual fund, membership program, or grassroots campaigns. Consider launching a recurring giving program if you haven’t already done so. Sector data indicate that recurring donors have a higher lifetime value, and their segment has been growing even as one-time gifts decline. The more people in your community who give something, even $5, the safer you are from one big loss. Plus, a wide donor base is a sign of community buy-in and legitimacy that can attract other funders.
Diversification isn’t just about getting new donors. Focus on keeping the ones you have. High donor churn rates are costly, with fewer than 1 in 5 new donors contributing again the next year. Focus on donor stewardship and retention strategies, especially for first-time and mid-level donors. Promptly thank donors and report on the impact of their gifts. Use personal touches such as notes, phone calls, and small appreciation events to make donors feel valued, no matter the amount of their gift. By improving retention, you grow a stable base and reduce the pressure to constantly find new donors to replace those who lapse. Over time, some of your small donors may increase their giving as their capacity grows, but only if you’ve built a strong relationship.
This may sound obvious, but it takes discipline. If you find yourself heavily reliant on one source (say, a particular foundation, government grant, or a donor couple), proactively manage that risk. For example, develop a contingency plan for the loss of that funding: How would you tighten the belt or replace the revenue? Engage the donor in frank dialogue about their commitment timeline, so you have a heads-up on any changes. And while you have their support, leverage it to attract others. Use a big grant as matching funds to incentivize new gifts, or ask a major donor to help you network with other philanthropists. The goal is to spread out your funding, so no single withdrawal becomes an existential crisis.
Your board members and key volunteers should be allies in widening the donor pool. Encourage them to tap their networks, host friend-raisers, and champion your cause to new audiences. A common mistake of nonprofits stuck in a donor squeeze is leaving fundraising solely to staff. Instead, create a culture where everyone, including board, staff, and even beneficiaries, where appropriate, helps extend your reach to potential supporters. This not only brings in new donors, but it also signals institutional strength to existing major donors, who will feel better knowing they’re part of a broad, engaged community of givers.
By implementing these steps, nonprofit leaders can start to relieve the donor base squeeze and strengthen financial resilience. It’s important to note that this challenge ties into other mindset issues we’ve discussed
Beware of mission creep. Chasing a big donor’s pet project can skew your mission if it’s done out of desperation to keep funds flowing.
All are related symptoms of an under-resilient funding model. The cure is a proactive, strategic approach to expand and balance your revenue streams.
Risk Alternatives enhances the resilience and sustainability of nonprofits through comprehensive tools, training, and support. For inquiries about conducting a risk inventory or other matters, please contact Risk Alternatives at info@tedbilich.com.