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At a glance
At a glance
About 45 minutes, including a 15-minute reading. By the end of this lesson you will be able to
describe the four main categories of nonprofit revenue
explain why the revenue mix matters and the risks of depending on one source
analyze the revenue of a real organization from its annual report
Suppose a school-meals nonprofit receives government payments, corporate donations and small gifts from individuals. The previous lessons followed people as they contributed money, time and skills; we now follow the revenue itself. Public money may provide scale, private gifts may give flexibility, and every source creates a different relationship.
Four categories of revenue
Four categories of revenue
Figure. Four broad revenue categories help compare organizations. Record the year, currency and accounting basis before comparing percentages across reports.
Public sector payments include grants and contracts for specific programs, statutory transfers that the law requires, and third-party payments, where government reimburses an organization for services to individuals, as with health insurance or vouchers. Private giving comes from foundations, companies and individuals. Earned income includes fees for services, membership dues, sales from business activities and investment income. Social finance is a newer category that includes crowdfunding and social impact bonds.
Nonprofits as multi-product organizations
Nonprofits as multi-product organizations
Categorizing revenue tells us where money comes from. To understand why an organization pursues one source rather than another, we also need to consider what it produces and which parts of its mission can generate income.
Burton Weisbrod suggests that nonprofits produce three kinds of goods. The preferred collective good is the true mission output, such as basic research or helping the poor, and is hard to sell. Preferred private goods are mission-related services that can be sold, such as education or healthcare, which the organization may offer whatever a client's ability to pay. Non-preferred private goods, such as museum restaurants, charity shops or lotteries, mainly raise money for the mission.
Why the mix matters
Why the mix matters
Each source brings expectations. Government contracts come with reporting rules, foundation grants with priorities, and earned income with market pressures. Dependence on one source can be risky if it ends, but a concentrated model can also provide scale and specialist relationships. Foster, Kim and Christiansen studied 144 large US nonprofits and found that many grew around one main funding model suited to their work. The better question is whether the main source fits the mission, remains sufficiently stable and leaves the organization able to make responsible choices.
Social impact bonds
Social impact bonds
The trade-off between resources and expectations becomes especially visible when public goals are financed through private investment.
In a social impact bond, an investor pays up front for a nonprofit to deliver a service. A government agency agrees to repay the investor, with a return, only if the service achieves agreed results. The risk moves from government to the investor, which is why these schemes are also called pay for success. They are more complex than ordinary grants and contracts, and they depend on outcomes that can be measured.
Example. Funding Nepali NGOs
Example. Funding Nepali NGOs
In a survey of Nepali NGOs, about two-thirds (68%) reported funding from international NGOs, a third (33%) from central, provincial or local government, and about a quarter from membership fees (25%) or individual donations (22%), with organizations able to name more than one source (KC, 2022). Heavy reliance on international funding helps explain why changes in donor priorities, and debates about localization in Lesson 4.2, matter so much in Nepal.
Read
Read
Foster, W., Kim, P., & Christiansen, B. (2009). Ten nonprofit funding models. Stanford Social Innovation Review. Republished by Bridgespan. https://www.bridgespan.org/insights/ten-nonprofit-funding-models
The article is free to read. Skim the ten models and decide which one fits an organization you know best.
Try it
Try it
Apply the same reasoning to a real set of accounts. Choose one of these organizations, or the organization you are studying, and find its latest annual report or financial statement on its website.
Nepal Youth Foundation (Nepal), https://www.nepalyouthfoundation.org/
Japan NPO Center (Japan), https://www.jnpoc.ne.jp/en/
Education for Development Foundation (Thailand), https://www.edfthai.org/
Akshaya Patra Foundation (India), annual reports for India and the UK, https://akshayapatra.org.uk/annual-reports
What share of its revenue falls into each of the four categories?
Does it depend heavily on one category? What risks does this create?
Could a major funder be shaping its direction or the people it serves?
What changes, if any, would you recommend to make its finances more stable?
Putting theory to work: From an NGO's revenue mix to national aid flows
Putting theory to work: From an NGO's revenue mix to national aid flows
The survey above describes funding as organizations experience it. Now step back and ask which institutions first receive Nepal's foreign aid. If 100 rupees entered the country, the annual average for 2019–2025 suggests that about 83 rupees first passed through government, six through international NGOs and eleven through local NGOs. The two views answer different questions: one concerns the revenue sources reported by surveyed NGOs, while the other follows the first recorded channel for aid entering the country.
The records cannot trace every later transfer or tell us who ultimately benefited, but they do show how concentrated foreign funding is. Across three recent years, about 1,427 local NGOs received approval for foreign assistance annually, roughly 2% of cumulative Social Welfare Council affiliations, 6% of organizations renewing with District Administration Offices and 21% of NGO Federation members. A district-level study adds that multilateral and bilateral aid was associated with poverty more consistently than NGO aid. This is a pattern in allocation, not proof of why a particular donor made a decision or who ultimately gained.
Read Dipendra KC's The “Dollar Kheti” Myth . For the district-level analysis, go further with KC, D. (2020), Which aid targets poor at the sub-national level? .
Try it. Trace one possible path from a bilateral donor to a local NGO. At each step, note who selects priorities, approves the budget, chooses indicators and receives reports. How might these relationships affect the local NGO's revenue choices and independence?
Key takeaway
Key takeaway
A funding mix is a map of relationships among an organization, its supporters and the people it serves. Concentration can bring scale and coherence as well as risk; the important question is whether the mix fits the mission, remains stable and leaves enough independence to act responsibly.
Check your thinking
Check your thinking
A strong answer gives figures with a year and a currency, and names the report it used. It links each risk to a specific source, for example a single government contract that could end, or a foundation whose priorities might change.
Context matters. Akshaya Patra, for example, runs school meals in partnership with India's government program PM POSHAN, so public funding and private donations both play large roles. A recommendation should fit the organization's mission and funding model, which may favor deepening one strong source over spreading thinly.
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