Financial Models for Not For Profits or Charities

Having founded one charity (the Ottawa Senators Foundation)
and worked with many not-for-profits, I get asked, “What are some of the
different financial models that an organization can adopt?” Here’s my list:

1. fee for service model
2. sponsorship model
3. donor model
4. grant model
5. social enterprise model
6. endowment model
7. non-endowment endowment model.

A fee for service model is simply charging users for
services provided, eg, a NFP music school or a dance school charges for
enrollment.

A sponsorship model depends on attracting sponsors, usually
private sector ones, who support the objectives and vision of the NFP or
charity. They usually provide support for two reasons—a) CSR, to meet their
corporate social responsibility objectives, and b) for marketing purposes, ie,
to capture eyeballs as measured via CPM (cost per thousand pairs of eyeballs
attracted). 

Sometimes corporations will set aside a certain percentage of sales during certain periods of time for a charity or NFP hoping to both fund the organization as well as drive more customers to their businesses. Another innovative approach is to provide the NFP or charity with staff volunteers hours, for which the company will also cut a check, matching hours to a dollar rate per hour so the organization gets both volunteers and cash. 

Companies can also sometimes be induced to contribute in-kind: food for a food bank, office or warehouse space for free etc.

The donor model requires highly motivated individual donors
to make this sustainable for an organization.

The grant model means applying to government, NGO,
foundations and other granting agencies.

Recent changes to the laws under which charities operate in
many nations have opened the door to NFPs and charities to operate their own
social enterprises—for profit parts of their operations, where the profits are
used to prop up/fund the charity’s good works. For example, a cancer clinic
might be subsidized by a coaching service that charges patients or others for
cancer coaching. We did this at the Ottawa Senators Foundation where we ran a 50/50 lottery (aka as a 50/50 draw), which raised millions. 

The endowment model (adopted by most tertiary institutions)
is to pitch their alumni and sponsors on contributing to an institutional
endowment fund, which in normal times only spends the interest on the fund, not
its principal. With interest rates in many countries hovering around 1.5%, the
endowment has to be large before a meaningful amount of operational dollars are
generated. Much of the endowment funding can come from alumni/donor insurance
or bequests on their passing.

Lastly, I recently had the idea of a non-endowment,
endowment fund explained to me by the executive director of an orchestral
school for children—the school gets the interest on cash on the balance sheet
of companies that agree to direct those funds to them but still have control of
and possession of the funds in their bank accounts… #clever.

Of course, an organization could adopt combinations and
permutations of some or all of the above models, but these are all the ones I
am familiar with. Whatever model is selected, it’s hard work to keep any NFP, NGO, foundation or charity going.

@ profbruce