The terms income diversification describes a number of activities that strive to reduce the dependence on a
- Specific type of income (e.g. donations, earned income from a specific product or service).
- Specific donor or grant maker.
- Dominating customer.
- Country that is the only or main source of funding.
- Currency in which most or all funds are paid out.
Income diversification is an organizational goal that will normally be defined during strategic planning.
Graphic 1 indicates benefits that achieving this organizational goal may provide.
Graphic 1: Benefits of income diversification
Indicators for your current income diversity and reliability
Degree of income diversification
- Total number of donors.
- % of funding coming from the largest donor.
- Ratio of international to local donors.
- % of income coming from self-financing.
- % of self-financing dependent on the largest customer.
- % of self-financing dependent on one product or service.
Reliability of sources of income
- Number of donors that have funded a new project when the old one was finished.
- Number of permanent customers.
- % of funding coming from sources existing since more than X years.
- % of donations that are paid out on time.
- % of earned income that is paid out on time.
Factors that influence the choice of strategic options
Organizations that want to make income diversification one of their strategic goals will have to consider a number of factors before they decide about how to achieve this goal.
- Organizational values
- Organizational capacities in key areas
- Available strategies
1. Organizational values
Values are important because it might be unacceptable to your organization to
- Sell services and products for a profit.
- Take donations from corporations.
The topic of core values and how to find them in discussed in the context of strategic planning on the following webpage: Defining core values
2. Organizational capacities in key areas
Capacities are important because your organization will only be successful at raising funds and self-financing when you can convince donors, grant makers and paying customers that you will meet their requirements or expectations.
Donors and grant makers who contribute a significant amount of money want to make sure that their money is well spent.
They will expect that
- Development goals are being achieved in an efficient and effective way.
- Progress towards development goals is being monitored and reported regularly.
Grant-makers will normally conduct some type of pre-grant assessment before they approve a project proposal. It is probable that large donors will go through a comparable process.
Paying customers will also have specific requirements concerning products and services delivered. They will expect:
- Competitive prices.
- Reliable deliveries.
- Quality as agreed.
- After-sales service
In order to meet these expectations your organization will need among others factors good processes in place, qualified staff and a supportive external environment.
These conditions should be ideally already in place before you approach donors, grant-makers and paying customers. Some grant-makers or donors may support capacity development activities when they receive a strong project proposal but consider some organizational capacities as not adequate.
Key elements of organizational capacity and how to identify and close capacity gaps are discussed here.
3. Strategies targeted at income diversification
Most NGOs that want to diversify their income and make their funding more reliable have to decide whether they want achieve this long-term goal only through
- Actions focused on donors and grant makers, potentially with minor self-financing activities
or will also be open to consider
- Starting significant for-profit activities, possibly organized in form of a Social Enterprise
a strategic option.
Organization that focus their activities on donors and grant makers will try to
- Diversify international sources of funding (e.g. new countries, different currencies)
- Diversify among national sources of funding
- Find donors and grant makers that have the reputation to be reliable
- Find donors and grant makers that contribute to overhead costs and start-up costs
Self-financing will only play a minor role in their considerations.
I discuss the topic “self-financing” with a special focus on manufacturing and selling goods and services for a profit here.
Raising and diversifying funds
International sources of income
There are numerous ways to raise funds internationally in different countries of the world. Some of these sources of income provide direct financial help to NGOs for their social and/or environmental programs.
Others work through organizations which will fund projects on their behalf.
- Official development assistance agencies (e.g. Department for international Development, UK).
- United Nations agencies.
- Multilateral development banks (e.g. World Bank).
- International Foundations (e.g. W.K. Kellogg Foundation/USA).
- Globally operating corporations.
- International NGOs.
- Internationally operating Social Investors.
- Church-based or religious organizations.
- General public (e.g. individuals donating online to a NGO abroad).
National sources of income
There are also numerous ways to raise funds nationally. Some examples:
- Governmental institutions.
- Locally operating businesses.
- Locally operating foundations.
- Locally operating Social Investors.
- Membership associations (e.g. Lions Club).
- General public.
Sources / Guide to further reading (available online)
J.Shapiro, Developing a Financial Strategy, at: http://www.civicus.org/new/media/Developing%20a%20Financing%20Strategy.pdf
- The toolkit presents strategic options for financing and explains what is needed to make the strategy work.
NCVO, Guide to sustainable funding, at: http://www.ncvo-vol.org.uk/products-services/publications/introductory-pack-funding-finance-voluntary-community-organisations
- The guide discusses expectations that an NGO faces dependent on the source of income chosen. Also how to access the money.
J.K.Boyson, Resources for mobilizing funding for development projects, 2001, at: http://www.gdrc.org/ngo/funding/ngo-grants.pdf
- The report provides comprehensive information about how to find sources of funding online.
National Minority Aids Council, Grant writing, at: http://www.nmac.org/index/oes-english
- The guide provides an introduction to grant writing and explains how to develop a staffing plan and a proposal budget.
J.Cravens, Basic tips for fundraising for small NGOs/Civil Society in developing countries, 2009, at: http://www.cabsa.org.za/book/export/html/660
- The document provides basic guidelines for small NGOs based in developing countries how to approach fundraising.
J.Shapiro, Writing a funding proposal, at: http://www.civicus.org/new/media/Writing%20a%20funding%20proposal.pdf
- The toolkit explains what to do before writing a proposal and provides tips about writing a proposal.
K.Alter, Social Enterprise Typology, 2007, at: http://www.virtueventures.com/files/setypology.pdf
- The author presents (pages 76 – 81) a variety of methods to generate income including a number of examples
Websites of large organizations providing funding
Department for International Development, Who we work with, Civil Society, at: http://www.dfid.gov.uk/About-DFID/Who-we-work-with1/Civil-society/
- The UK Department for international Development works with over 200 international and UK civil society organizations.
W.K. Kellogg Foundation, Grants database, at: http://www.wkkf.org/grants/grants-database.aspx
- The W.K. Kellogg Foundation gives grants to NGOs in the USA, Latin America, The Caribbean and Southern Africa.
World Bank, Funding resources for Civil Society Organizations, at: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/CSO/0,,contentMDK:20716284~pagePK:220503~piPK:220476~theSitePK:228717,00.html
- The World Bank offers funding directly and indirectly. Many of the funding programs are in partnership with governmental donor agencies.