How to Build a Sustainable Funding Strategy for Your Charity?
Most charities can list the funding they hold. Fewer can explain why that particular mix of income is the right one for the work they have committed to deliver.
That is the difference a funding strategy makes.
A charity funding strategy sets out how an organisation will pay for its plans. It records what income is needed, which streams will be developed, what balance of restricted and unrestricted funding is required, and whether the charity has the capacity to raise it. Reactive fundraising responds to whichever opportunity appears next. A strategy decides in advance which opportunities are worth pursuing.
This article covers how to assess your current funding position, work out what you actually need, evaluate income streams against your own circumstances and turn those decisions into a plan a board can hold you to.
Start by Assessing Your Current Funding Position
Assessing your current funding position by creating a funding map is a useful way to see each of your income sources, their value, whether they are restricted or unrestricted and when they are due for renewal.
A funding map should record:
Each income source and the amount it generates
The percentage of total income that source represents
Whether the income is restricted or unrestricted
Whether it is one-off or recurring
The date the grant, contract or agreement ends
The cost of raising it, expressed as cost per pound raised
The person responsible for the relationship
Two metrics are key here for a sustainable funding model.
The first is the share of income coming from the largest single source. Where one funder, contract or event accounts for more than a third of income, the charity’s plans depend on decisions it does not control. The second is the share of income ending within the next twelve months, which shows how much of the funding base is already in play.
Work Out What Funding You Actually Need
Focus on your organisational needs rather than funding opportunities. The key is knowing what you need to fund so you can determine whether a particular financing opportunity is useful.
Cover the following areas when observing your organisational needs:
What does it cost to deliver core services at their current level?
What does the charity’s strategy commit it to over the next one to three years?
Which programmes need investment before they can grow?
How much unrestricted income is needed to cover core costs, governance and support functions?
What increases in demand or cost are anticipated?
What level of reserves is appropriate, and how far is the charity from it?
What income is already contracted or committed?
The Charity Commission’s guidance on reserves sets no required level. Trustees set a policy reflecting their own risks and commitments, state the level held in the annual report and explain why it is held.
Subtracting committed income from the full cost of the plan gives the funding gap. That figure is more useful than a round target because it can be tested, and because it gives a clear basis for declining opportunities that close none of it.
Evaluate Your Potential Income Streams
Income streams each have their own strengths and weaknesses. Diversifying them reduces risks and increases financial resilience. It is important to evaluate your potential income streams against your charity’s circumstances to assess which ones are right for you.
Potential income streams include:
Trusts and foundations: low cost per pound raised and able to support multi-year work. Grants are often restricted to specific projects, which pulls activity towards funder priorities.
Statutory income: predictable while it lasts, but exposed to spending decisions the charity cannot influence, often at short notice.
Commissioned services and contracts: allows for scale, but payment is tied to delivery, which transfers financial risk to the charity.
Corporate partnerships: brings profile and access alongside income. Securing a substantial partnership commonly takes twelve months or more, and partnerships end when a sponsor changes direction.
Individual giving: largely unrestricted, so funds go where they are needed. Acquisition costs are high and a new programme can take two to three years to break even.
Major donors: usually unrestricted and more resilient to economic pressure than mass giving. Concentration risk applies here too, because one donor stepping back can remove a significant share of income.
Community fundraising: accessible and generates unrestricted income, though managing events and volunteers is labour intensive relative to what it raises.
Trading and social enterprise: income does not depend on funder decisions, but it requires commercial skills, working capital and a genuine market.
Legacies: a high return on investment over time, though income cannot be forecast for a particular year and a pipeline takes a decade or more to mature.
For each potential stream ask:
How much could it realistically generate, and by when?
How predictable is it once established?
What skills, systems and investment are needed to start?
What is the likely cost of raising it?
What risks does it introduce, including reputational risk?
This usually reveals which streams complement each other. A charity heavily reliant on restricted project grants gains more from developing unrestricted income than from adding a ninth grant funder.
Build a Resilient Funding Mix
Diversification isn’t about having lots of different income sources. It’s about creating an appropriate balance of restricted and unrestricted income, short and longer-term funding, predictable and variable income, different types of funders and existing and new relationships.
Having access to unrestricted income is especially important for building reserves, responding to changing circumstances and covering costs that project grants don’t fully meet. This doesn’t mean that restricted income is inherently problematic, but the overall mix should be sustainable and appropriate for your charity.
Make Sure Your Fundraising Capacity Matches Your Ambitions
A funding strategy has to be deliverable by the organisation that wrote it. Identifying the right streams is only the starting point. Generating the income requires people, skills, systems and relationships.
Assess current capacity honestly against each priority stream:
Skills: does the team have experience of this specific stream, rather than of fundraising in general?
Leadership: are senior leaders and trustees available for the relationship building that major donor and corporate work depends on?
Investment: what has to be spent before this stream returns anything?
Systems: is there a database and a process capable of managing a pipeline, or does the information sit in spreadsheets and individual inboxes?
Case for support: can the charity demonstrate impact clearly enough to persuade a funder that does not already know it?
It is important to take into consideration that different income streams require different types and levels of resources. Identify the requirements for each income stream and compare them with current capacity.
You may need to invest in fundraising capacity before pursuing significant income growth. Identify capacity gaps and address actions in your funding strategy to overcome them. Developing a funding strategy around what your organisation has the capacity to develop, manage and sustain means that you do not spread your team and resources too thin.
Turn Your Strategy Into an Actionable Funding Plan
Turn strategic decisions into a working plan. Include a funding priority, income stream, your target, and timescale, as well as key actions and risks.
For example:
Funding priority: Increase unrestricted income
Income stream: Major donors
Target: £100,000
Timescale: 12-18 months
Key actions: Prospect research and case for support
Risk: Limited existing donor base
Building a funding plan in this way means that you choose the right income streams for your funding priorities.
Sustainable funding is not always about finding someone new, it is just as important to protect existing income. Retain and protect existing funder relationships and explore opportunities to deepen valuable relationships before developing new income streams. This means that new income streams can be developed where there are genuine gaps.
Review and adapt the strategy
A funding strategy should be a living management tool which is always under ongoing review. Reviewing funding concentration, funder retention, restricted and unrestricted balance, pipeline conversion, and changes in the external funding environment brings clarity to whether the funding mix still supports organisational priorities.
How VMC Consulting Can Help
A sustainable funding strategy starts with understanding what your charity needs to achieve, then identifying the income mix that can support those ambitions. Most organisations can see that for themselves. Finding the capacity to do the assessment and build the pipeline, while still running services and raising this year’s income, is where it stalls.
VMC has now raised more than £6 million for its clients. For clients that have worked with us for more than six months, the average return is at least £15 for every £1 invested in our support. That is well above sector averages.
For a clearer approach on how to build a sustainable funding strategy, speak to our team of charity consultants today. Working with us is more cost effective than hiring charity consultants in-house, delivers real return on investment, and can be cancelled at any time.