You have developed a solution to a social problem. Now you are looking for a sustainable business model that ensures your solution reaches as many people as possible and achieves maximum impact. What do you do?
That is the question Spring Impact has asked itself. To find the answer, the organization analyzed the business models of 28 high-performing nonprofit organizations that deliver solutions to social problems worldwide.
The analysis shows there is no golden key to scaling impact. The findings call for serious reflection among funders who hold the power to change how solutions are scaled, believes Alice Metcalf, who led the analysis.
“Fully sustainable business models for nonprofit organizations are extremely rare. Almost none of the organizations we spoke with consider their business model to be sustainable,” she says.
The perfect business model for an NGO is an illusion. You will always need to maneuver, adjust, think outside the box, and change direction. Or, as Spring Impact puts it in the analysis:
“Financial models are – and will always be – dynamic.”
Scratching the Surface
Spring Impact examined the business models of 28 organizations operating in 70 countries across ten sectors, including health, environment, education, and financial inclusion.
Philanthropy is necessary at every stage of a nonprofit’s journey
Alice Metcalf, Managing Consultant, Spring Impact
The study is based on a frustrating realization:
“Many nonprofit organizations do fantastic work tackling deeply entrenched problems. But when we compare their impact to the size of the problem they are addressing, we see that their solutions rarely do more than scratch the surface,” says Alice Metcalf.
And the explanation is financial:
“One of the biggest barriers these organizations face is access to funding – and access to the right type of funding,” says Alice Metcalf.
Funding Comes from Five Sources
To understand the financial landscape, Spring Impact analyzed the funding streams that sustain these 28 organizations.
Funding comes from five main sources: Philanthropists, governments, global and multilateral institutions such as USAID, WHO, and UNICEF, corporations, and end users.
And most non-profits can eliminate one category right away: end users.
“It’s not that models where end users pay for services don’t exist. It’s just extremely rare that end user fees can sustain an entire non-profit,” says Alice Metcalf.
“The people who need help the most rarely have the means to pay for it.”
This is reflected in the analysis, where only six of the 28 organizations receive funding from end users.
That leaves four funding sources. And one of them stands out significantly.
Five Tips on Funding for Nonprofits
Although a challenging landscape to navigate, the 28 successful non-profits demonstrated that it is possible to create impact at scale. They offer guidance to other non-profit leaders.
Strive for cost Efficiency: Work purposefully to reduce costs per outcome. Funders want to see their funds stretch far and create significant results.
Build Evidence of Your Impact: Demonstrate that your solution is more effective than others. Use solid evidence of your solution’s effectiveness to convince funders that their contribution yields the best return.
Integrate Solutions into Existing Systems: Design solutions that can be implemented and executed by other actors or systems so that costs can be absorbed and sustainability increased.
Test, Learn, and Adapt: There is no universal funding model that fits all. Be agile, experiment with different models, and continuously adjust so the organization can respond to changes in the financial landscape.
Diversify Your Funding Sources: Do not rely on a single funding source. Seek support from different types of payers to minimize risk from fluctuations and instability in cash flows.
Foundations Play a Critical Role
Every organization in the study receives philanthropic funding. And money from foundations and philanthropists accounts for 68% of their total revenue.
It is not surprising that foundations play a significant role in funding social initiatives, notes Alice Metcalf.
The real surprise is that they play such a crucial role even when well-tested solutions are being scaled up.
“Funders expect organizations to find alternative revenue streams and reduce their reliance on philanthropy as they grow,” says Alice Metcalf, adding:
“That expectation is actually not very helpful.”
She explains that finding new sources of income is extremely difficult for these organizations.
“Philanthropy is necessary at every stage of a nonprofit’s journey,” says Alice Metcalf.
“Funders often assume that at scale, organizations will have a fully sustainable model that no longer requires philanthropic support. But that assumption is unrealistic – and unhelpful.”
Public Funding is Challenging
Another common expectation is that social enterprises should develop solutions that can eventually be integrated into public services.
But when examined more closely, this model is far less straightforward than many assume, explains Alice Metcalf.
- Bureaucracy often prevents governments from being agile enough to adjust and implement innovative solutions while still delivering expected services.
- Securing public funding takes time and resources – and governments are not always able to commit to sustaining externally developed solutions.
“It can be really challenging to secure public funding, and there is always a risk that government priorities will shift and funding will be cut – especially in low-income countries,” says Alice Metcalf.
She points to an example of an organization that worked tirelessly to integrate its life skills program into the national curriculum.
“They spent enormous effort establishing the right structures and training government officials to run the program. They really went the extra mile,” says Alice Metcalf.
“But as soon as they stepped back, they were told that the government didn’t have the budget to sustain the program – unless the organization continued running it themselves.”
Implementation Also Requires Funding
And here lies another challenge.
Scaling a solution through external partners or public service integration is an effective way to increase impact. Many of the 28 organizations in the study have successfully embedded their solutions into public systems.
But it’s not free. Literally.
We found very few cases where governments or partners covered the costs of implementation support.
Alice Metcalf, Managing Consultant, Spring Impact
The implementation phase requires funding, which governments rarely have. This means that organizations must fundraise not only for developing their solution but also for its implementation.
“We found very few cases where governments or partners covered the costs of implementation support,” says Alice Metcalf.
“Governments very rarely have the budget to pay for capacity-building. So even when an organization successfully engages external partners to deliver their solution, there remains a funding gap that needs to be filled.”
Other Funding Sources Have Limitations
Neither of the two remaining funding sources – corporations and multilateral institutions – are silver bullets.
- Corporations contribute funding but only when they see a strategic benefit – such as enhancing their ESG reporting or employer branding.
- Half of the organizations in the study receive corporate funding, but it only accounts for 14% of their total budgets.
- Only one organization relies on corporate funding as its primary revenue source.
Multilateral institutions, such as the World Bank, USAID, and UNICEF, have significant financial resources and can open doors to large-scale funding.
However, these grants are incredibly difficult to obtain and come with strict reporting requirements.
“Some organizations even told us that they have declined funding from bilateral and multilateral institutions because they found that the burden of reporting and compliance outweighed the benefits of the grant,” says Alice Metcalf.
Philanthropy is Indispensable
The bottom line is clear: foundations and philanthropists are absolutely indispensable – not just in the early stages, but throughout the entire scaling journey.
And this calls for serious reflection among funders, says Alice Metcalf.
“It’s crucial that philanthropic funders recognize the central role they play – and the responsibility that comes with it.”
Philanthropy is essential to solving major, complex societal challenges. And funders must reflect that in how they distribute funding, argues Alice Metcalf.
“Everyone knows that short-term, restricted funding is less beneficial for organizations, while long-term, flexible funding is what’s needed to create transformative change. But funders generally perceive this approach as more risky.”
That risk is something funders must be willing to take if they truly want to create impact.
“I would encourage funders to ask themselves: ‘Am I willing to invest in a way that could create transformational impact at scale?’” says Alice Metcalf.
If not, that’s fine, she adds.
“If funders only see short-term, earmarked funding as an option, they should be realistic and accept that this approach will only lead to gradual and limited improvements. And they should clearly communicate this to organizations,” says Alice Metcalf.
