I know there’s a lot of talk from economists about RECESSIONS right now. Whether we’re already in a recession or one is looming on the horizon, you might be wondering what it all means for your work and what you need to know about nonprofits and recessions.
First, I want to share two terms that are key to understanding recessions.
- Procyclical. This word describes organizations that shrink when the economy is bad.
- Countercyclical. This term describes organizations that grow when the economy is bad.
A Harvard Business Review (HBR) study explains that the public wants nonprofits to be countercyclical. In other words, they want nonprofits to expand their services in response to challenging economic conditions. This makes sense. If more people are experiencing food insecurity, for example, there’s an increased need for food pantries.
But this HBR study also shows that nonprofits historically haven’t been countercyclical. Rather, they’re affected by recessions the same way think of most individuals and businesses being affected. That is, their revenue decreases and they scale back their programs in response.
Okay, so now you’re probably wondering what you can do to help your nonprofit stay afloat during the recession.
3 Actions to Take
FIRST, take stock of your finances now. Where does your revenue come from? Do you rely primarily on individual donations (which are often much more difficult to secure during an economic downturn)? Do you bring in any revenue from fees for your services? How much of your revenue comes from grants? Nonprofits that diversify their revenue do better in recessions.
SECOND, understand how a recession impacts the need for your organization’s services. Stay up-to-date with relevant statistics about how the economic downturn is affecting your community and the people you serve. For example, if you provide employment counseling, keep up with unemployment numbers. Whether you’re talking with individual donors or writing grant applications, this information is going to make your case much stronger. Keep your finger on the pulse of what’s happening around you.
THIRD, make a plan for reducing your expenses and increasing your revenue. I can’t tell you what the plan is because it should be highly specific to your organization. What I can tell you is that the time to plan is NOW. This planning is time-consuming. I always say that small nonprofit leaders should spend 50% of their time fundraising and grantseeking. And that’s perhaps even truer now with the need to get strategic with how you fund your work.
How to Diversify Your Revenue
I want to dig a little deeper into one of those points: diversifying your revenue streams.
What does that really mean?
Nonprofits’ revenue can come from several sources: individual donations, grants, and fees for service. Some founders of small nonprofits fund their organizations out of their own pockets.
Individual donations and out-of-the-founder’s-pocket funding are the least stable during a recession.
The Harvard Business Review report says that nonprofits that bring in revenue through fees for their services fare better than those that don’t in recessions.
Making grantseeking a priority is another way to diversify your revenue.
Within grants, there are different levels of stability in a recession depending on the type of funder. Corporate foundations often give less during recessions, as their own revenue decreases. One report from H. Daniel Heist at the University of Pennsylvania School of Public Policy says that grants from donor-advised funds tend to stay stable even in recessions. The availability of government grants during a recession depends on fiscal policy. In the COVID-19 recession, the government made more funding available to counteract the economic downturn.
So there are two actions I want you to take today . . .
#1: Take stock of where your revenue comes from. Do you rely too much on individual donations or fundraising events (that are often expensive to put one)?
#2: Pick one area of revenue that you want to increase and make a plan for doing so.
Are there any opportunities to charge a fee for your service? Even if you bristle at the idea of this, know that it’s not an uncommon practice.
AND it can be good for your outcomes. For example, if you run GED prep courses, charging students a small fee can increase their buy-in to the program. People want to get the most out of what they invest in, even if it is a small investment.
I also want you to think about making grantseeking a priority. Not only are the award amounts much higher than what an individual donor can give, there are opportunities for renewal grants once you establish a relationship with a grantmaker.
AND the work you do in diversifying your revenue will make you grantmakers more likely to fund you. They like to see that their contribution isn’t all you’re relying on.
Your Next Steps
Even if this discussions of nonprofits and recessions sets off the panic bells, know that there are steps you can take to stay afloat and continue serving your community when they need it most.
It starts with having a plan. I want to help.
Ready to diversify your revenue with grants? Download the Roadmap to Grant Funding to get started.
