Ten Nonprofit Funding Models

2. BENEFICIARY BUILDER Some nonprofits, such as the Cleveland Clinic, are reimbursed for services that they provide to specific individuals, but rely on people who have benefited in the past from these services for additional donations. We call the funding model that these organizations use the Beneficiary Builder. Two of the best examples of Beneficiary Builders are hospitals and universities. Generally, the vast majority of these nonprofits’ funding comes from fees that beneficiaries pay for the services the nonprofits provide. But the total cost of delivering the benefit is not covered by the fees. As a result, the nonprofit tries to build long-term relationships with people who have benefited from the service to provide supplemental support, hence the name Beneficiary Builder. Although these donations are often small relative to fees (averaging approximately 5 percent at hospitals and 30 percent at private universities), these funds are critical sources of income for major projects such as building, research, and endowment funds. Donors are often motivated to give money because they believe that the benefit they received changed their life. Organizations using a Beneficiary Builder model tend to obtain the majority of their charitable support from major gifts. Princeton University is an example of a nonprofit that uses the Beneficiary Builder model. The university has become very adept at tapping alumni for donations, boasting the highest alumni-giving rate among national universities—59.2 percent. In 2008, more than 33,000 undergraduate alumni donated $43.6 million to their alma mater. As a result of the school’s fundraising prowess, more than 50 percent of Princeton’s operating budget is paid for by donations and earnings from its endowment. Nonprofit leaders considering the Beneficiary Builder funding model should ask themselves the following questions:
* Does our mission create an individual benefit that is also perceived as an important social good?
* Do individuals develop a deep loyalty to the organization in the course of receiving their individual benefit?
* Do we have the infrastructure to reach out to beneficiaries in a scalable fashion?