How Do Nonprofits Make Money?

There are some BIG myths about the nonprofit world that derail founders on their journey to starting a charity. Here’s a big one:

“Once we get our 501c(3) status, we’ll get funding!”

I’m sorry to burst your bubble, but it’s just not that simple. Getting your IRS public charity status is an important step, but that status isn’t like finding a golden ticket to Willy Wonka's money factory. As any nonprofit pro will tell you, fundraising is the one of the hardest parts about starting, running, and growing a nonprofit organization.

Quick Summary

Getting 501(c)(3) status doesn’t come with a funding guarantee. Building a sustainable nonprofit means putting in the work to find multiple revenue streams.

• Individual donations are the backbone of most nonprofits
• Government and foundation grants are competitive and come with strings attached
• Fee-for-service programs means that many nonprofits earn income directly from the services they provide
• Special events can engage donors but cost money to execute well
• The most successful nonprofits get their revenue from more than one source

The Reality Check You Need (But Don't Want)

New nonprofit founders are so fixated on getting their IRS status – and it is a big step, I get it! But at the end of the day, that IRS determination letter you get is JUST a piece of paper.

Sure, it means donors can get a deduction on their taxes when they give. But that only applies if you have donors willing to give in the first place!

Grants aren’t going to just magically present themselves. Donors won’t suddenly appear at your door with oversized checks. Once you get that IRS status, you’re joining the millions of organizations who are competing for the same gifts, grants, and donor support. It’s just the beginning – not the finish line.

So How DO Nonprofits Actually Make Money?

The most successful nonprofit founders I work with have one big thing in common – they have a plan. They’re not just waiting for donations to fall like manna from heaven. They know that for a nonprofit business to succeed, you need to get money in the door.

But how do you do it? Most budgets have some or all these kinds of income:

Individual Donations

This is still the bread and butter for most nonprofits. But here's the kicker – it's not about that one wealthy donor (though they're nice to have). Strong nonprofits build a community of supporters who believe in your mission enough to write checks, set up monthly giving, or champion your cause to their networks.

Government Grants

Yes, they exist. No, they're not easy to get. And honestly? They come with a ton of strings. But for the right organization with the right capacity, they can be a good fit.

Foundation Grants

These are competitive, often restricted, and require you to spend time writing proposals, reports, and more. They can be a great source of funding, but there are drawbacks, too.

Fee-for-Service Programs

This is when the nonprofit charges for services and earns income from it. Think about the YMCA, your local science museum, or the chamber orchestra. All these nonprofits charge for their services, which helps cover their costs.

Special Events

These are your galas and golf tournaments. These may be an important way to engage your donors, but it costs money to throw an event people want to participate in!

The Bottom Line

Just because you're a nonprofit doesn't mean you can ignore the money side of things. Your mission is important. Your cause matters. You owe it to yourself and your vision to take it seriously – and that means getting real about the money. How much money are you going to need to run your program? Where is that money going to come from? Having even some tentative answers to those questions will make all the difference as you make your dream a reality.

FAQ

Can a brand new nonprofit get grant funding right away?

Some grants are available to newer organizations, but many funders are looking for a proven track record. Most new orgs will need to build relationships and begin measuring their impact before their grant applications are successful.

How do I know how much money we'll need to raise?

No one really enjoys the prospect of making realistic budgets, but it's an important step to planning your fundraising. Do some brainstorming about what it'll cost to run your program, and don't forget to factor in costs for things like rent, insurance, accounting, legal, and other professional services.

What’s the most common funding mistake new nonprofits make?

Relying too much on one source of income. Many founders fund the org themselves to start, but that isn't going to last forever. Finding a wider base of support, along with other sources of income, is what the best way to build a nonprofit that can last.