Ever since last year’s release of the Letter to the Donors of America it seems there is an increasing drumbeat against the “Overhead Myth,” the idea that nonprofits must keep their overhead and administrative costs as low as possible. The fact that we are now openly talking about overhead as a myth is very encouraging.
But I think it will take a good deal of time before donors actually embrace the idea that nonprofits should stop starving their organizations of the resources they need to create and execute effective programs.
To move donors along, nonprofit leaders must lead this conversation with their own donors. Those nonprofit leaders who need more money to build a stronger, more effective and sustainable organization behind their work should educate themselves, their board members, and their donors about capacity capital.
“Capacity capital” is a one-time infusion of significant money that can be used to strengthen or grow a nonprofit organization. Capacity capital is NOT the day-to-day operating money nonprofits are used to raising and employing. Rather, capacity capital is money to build a stronger, more sustainable organization.
A nonprofit could use capacity capital in many ways, for example to:
- Plan and execute a program evaluation
- Plan and launch an earned income stream
- Create a strategic financing plan
- Hire a seasoned Development Director, or other revenue-generating staff
- Purchase a new donor database
- Improve program service delivery
- Upgrade website, email marketing, and/or social media efforts
- Launch a major gifts campaign
But raising capacity capital is not like traditional fundraising. It involves determining how much capacity capital you need, creating a compelling pitch, deciding which prospective funders to approach, and educating those prospects about the power of capacity capital. In so doing, you are not only raising the money you so desperately need, but you are also leading your part of the nonprofit sector away from the overhead myth.
The Launch a Capacity Capital Campaign Guide can show you how to raise capacity capital for your nonprofit.
Here is an excerpt from the guide…
Section 1: Create a Capacity Building Plan
You cannot raise money without a plan for how you will spend it. Funders need to be convinced that you did your homework and have a clear, actionable, measurable plan for how you will invest capacity capital dollars to result in a stronger organization that can deliver more impact.
To get there, start by answering these questions:
- What is holding our nonprofit back from doing more and being more effective?
- What could we purchase to overcome these hurdle(s)?
- If we were able to purchase these items how would we use them and over what time frame?
- What can we reasonably expect to be the changes in our effectiveness and/or impact because of these things we purchased and implemented?
With your answers to these questions, put together a plan.
Start by creating 1-3 goals around the hurdles you identified in #1 above. For example, you may have identified in #1 that you don’t have adequate staff to raise enough money to achieve your mission.
So your capacity plan goals might be:
- Create an overall money strategy to raise $450,000 per year.
- Hire a Development Director to implement the plan.
- Secure the technology and materials necessary to raise this money (database, website, etc.)
Or, if you are a much smaller nonprofit, your goals might be more modest:
- Create an overall money strategy to raise $100,000 per year.
- Train the board on their role in fundraising.
- Upgrade our website to attract online donations.
Once you’ve developed your goals, make a laundry list of activities and purchases necessary to make each goal a reality. In some cases you may need outside help to determine how to get there. For example, you may not know how to put together an overall money strategy to raise $450,000, so you may have to hire a fundraising consultant to help you create that strategy. Also note roughly how long each activity will take.
So, your list of activities with a timeline for each might look something like this:
Goal 2: Train the board on their role in fundraising
- Discuss and get buy-in from board on a fundraising training (October)
- Find a date/location (October)
- Research fundraising trainers (November-December)
- Hire a trainer (January)
- Hold training (February)
- Follow up with each individual board member on the next steps resulting from the training (March-April)
Once you have listed all of the activities to achieve each goal of your capacity plan, highlight activities that would require new purchases. Research a ballpark figure for what each one would cost and then attach that figure to those highlighted items, like this…
Photo Credit: Franklin D. Roosevelt Presidential Library and Museum