When the money gets tight, nonprofits are often told to find more kinds of money. That advice can be financially sensible and operationally impossible at the exact same time.
I was commenting on a post about nonprofit funding when I wrote:
“Diversify your revenue” can become the sector’s favorite way to assign homework after the emergency.
The more I sat with it, the more I realized that is exactly what bothers me about the conversation.
A grant disappears. Diversify.
A contract is at risk. Diversify.
Individual giving slows down. Diversify.
A board sees too much revenue coming from one place. Diversify.
On paper, I understand the instinct. Concentration creates exposure. If one funder can materially change your organization by changing its mind, leadership should know that.
But there is a second risk we do not talk about nearly enough:
the cost of trying to diversify when the organization does not have the capacity to do it.
New revenue is not free revenue.
Before it becomes money, it is usually work.
It is staff time. Relationship building. Proposal development. Marketing. Systems. Data. Follow-up. New expertise. Leadership attention. Sometimes new hires. Sometimes months of investment before the first meaningful dollar arrives.
So if a funding loss has already hollowed out the team, telling that team to go build three new revenue streams can amount to this:
Build the replacement engine. Also, we took away the gas.
That is not a strategy problem alone.
That is a runway, capacity, and sequencing problem.
The research is more interesting than “diversify”
This is where the conventional advice starts to get uncomfortable.
In 2025, The Bridgespan Group studied 175 small and midsize U.S. nonprofits across civil rights, environmental, and youth-service organizations. Seventy-four percent received at least half of their revenue from one funding category. Bridgespan found no correlation between organization size and whether an organization relied primarily on one category.
Their conclusion was not that concentration carries no risk. It was that nonprofits should think more carefully about revenue concentration versus diversification, including whether they can deepen the category where they already have a natural advantage.
The pattern is even more pronounced among large nonprofits. Bridgespan’s research on organizations with more than $50 million in annual revenue found that more than 90 percent raised the bulk of their money from one category of funding.
That does not mean everybody should put all their eggs in one basket.
It means the basket conversation has been oversimplified.
There is a meaningful difference between:
depending on one funder
and
building deep capability in one funding category while having multiple funders within it.
A nonprofit may be heavily oriented toward government revenue, for example, while having contracts across multiple agencies or levels of government. A foundation-driven organization may have dozens of foundation relationships. That is concentration by category without necessarily creating dependence on a single check.
Bridgespan’s more recent guidance also points to another model: a strong primary funding category, supported by a meaningful secondary category, rather than trying to become excellent at everything at once.
And the academic research is not one-sided. A meta-analysis of 40 studies found a small positive association between diversification and nonprofit financial health overall, while also finding that the effects vary depending on how diversification is measured and that results for U.S. nonprofits were weaker or more negative.
Translation?
Diversification is a tool. It is not a law of nature.
Before we ask “Where else can we get money?” I want to see the operation
This is the part where Karu and I tend to land in the same place from two different directions.
The finance question might be:
Where is the revenue risk?
My next question is:
What does the organization have to become operationally to reduce it?
Those questions belong in the same room.
If the answer is individual giving, who owns donor acquisition, cultivation, stewardship, and retention?
If the answer is corporate partnerships, who builds the pipeline and manages those relationships?
If the answer is earned revenue, what are we selling, what does it cost to deliver, who is buying it, and what margin is left after delivery?
If the answer is foundations, does the organization actually have the relationships, grant capacity, reporting infrastructure, and program data to compete?
If the answer is “all of the above,” I have more questions.
Because each revenue stream comes with its own operating model.
Different money asks different things of the organization.
That is the part a pie chart cannot show you.
Revenue diversification can create workload diversification
This is where organizations get in trouble.
A new revenue stream does not simply create another line on the income statement. It can create another set of workflows.
Another pipeline.
Another reporting requirement.
Another audience.
Another technology need.
Another person who needs information from programs.
Another deadline calendar.
Another set of relationships the executive director is expected to hold in their head.
And if the organization never makes a corresponding decision about what stops, what gets reassigned, or what new capacity gets funded, the “revenue strategy” quietly becomes a workload strategy.
Except nobody calls it that.
They just wonder why the team is exhausted and the new revenue has not materialized yet.
The runway matters more than the brainstorm
There is also a timing problem.
The National Council of Nonprofits notes that many nonprofits report having less than three months of operating reserves, while also emphasizing that there is no single reserve target appropriate for every organization.
That matters because revenue strategies have lead times.
You can decide today that major gifts should become a meaningful revenue source. That does not mean major gifts become meaningful revenue next Tuesday.
You can decide to launch an earned-income product. That does not mean the market owes you customers.
You can decide to pursue corporate partnerships. That does not mean corporations immediately have budget, alignment, and procurement ready for you.
There is a gap between choosing a revenue strategy and receiving dependable revenue from it.
Your organization has to finance that gap.
So before I get excited about a new revenue stream, I want to know:
- How many months of usable cash do we have?
- What revenue is restricted versus flexible?
- What is the true cost of the programs we are already delivering?
- What does this new strategy cost before it produces revenue?
- How long is the realistic ramp?
- Who owns it?
- What are we willing to stop funding or doing while we build it?
- What happens if it takes twice as long as planned?
That last question matters.
A strategy that only works if everything goes right is not much of a strategy.
Sometimes the strongest move is to go deeper, not wider
One thing I appreciated about the conversation that sparked this article was another strategist saying that, in his experience as an executive director, growth sometimes came from focusing on the funding area the organization was already best at.
That is consistent with what Bridgespan calls a nonprofit’s “natural match”: the alignment between what an organization does and the motivations of the people or institutions most likely to fund it.
I think we should spend more time there.
Where do you already have trust?
Where do you already have proof?
Where do you already understand the buyer or funder?
Where is your cost to raise the next dollar lower because the infrastructure already exists?
Where are relationships already warm?
Where does the mission naturally fit the funding?
Before building an entirely new engine, it is worth asking whether the existing engine needs better fuel, better systems, or more room to run.
And sometimes you do need to diversify
This is not an argument for ignoring concentration risk.
If 80 percent of your revenue depends on one relationship, one contract, or one decision-maker, leadership should be looking at that.
If your primary funding category is structurally shrinking, that matters.
If the mission has evolved and the funding model no longer fits the work, that matters.
If a secondary revenue category is already showing real traction, investing in it may make sense.
But those are diagnostic reasons to diversify.
“Diversification is good” is not.
The better question is not:
How many revenue streams do we have?
It is:
How resilient is the funding model we actually know how to operate?
Financial resilience and operational resilience have to meet
The Urban Institute reported that among nonprofit leaders surveyed entering 2025, 55 percent identified financial health as their biggest concern, and most of that group pointed specifically to financial uncertainty. Leaders also described the pressure of trying to grow revenue while program costs and community needs were rising.
That is the environment many organizations are making these decisions inside.
Which is why I do not think this is the moment for generic advice.
A nonprofit can have five revenue streams and still be fragile.
If every stream depends on the executive director, that is fragility.
If nobody can see the pipeline, that is fragility.
If donor history lives in somebody’s inbox, that is fragility.
If programs do not know their true delivery cost, that is fragility.
If every new opportunity becomes an exception to the way work is supposed to move, that is fragility.
If the organization has “diversified” by asking the same six people to do twelve more things, that is definitely fragility.
Revenue diversity can be part of resilience.
It cannot substitute for it.
I would start with four decisions
Before a nonprofit launches another funding strategy, I would want leadership and the board to get clear on four things.
1. Protect
What revenue, program, relationship, or capability is already working and should not be destabilized while the organization reacts?
2. Stop
What is consuming money or capacity because “we have always done it,” not because it is still strategically necessary?
3. Strengthen
Where does the organization already have a funding advantage worth deepening?
4. Build
What new revenue capability is important enough to invest in deliberately, with an owner, budget, timeline, systems, and realistic ramp?
Notice that build comes last.
That is intentional.
Because sometimes the first decision after losing money should not be what new thing to chase.
Sometimes the first decision is what to protect.
Sometimes it is what to stop.
Sometimes it is admitting that the organization needs to stabilize before it asks itself to grow.
And sometimes, yes, the answer is diversification.
But by then, it is no longer a slogan.
It is a decision the organization has actually built the capacity to carry.
The goal is not to have the most revenue streams.
The goal is to fund the mission without breaking the operation carrying it.
Sources and further reading
- The Bridgespan Group, How Small and Midsize US Nonprofits Get Their Funding (2025)
- The Bridgespan Group, Finding Your Nonprofit’s Funding
Strategy
- The Bridgespan Group, Funding Strategies for Uncertain Times: Practical Guidance for Nonprofits
- National Council of Nonprofits, Operating Reserves for Nonprofits
- Hung & Hager, The Impact of Revenue Diversification on Nonprofit Financial Health: A Meta-analysis, Nonprofit and Voluntary Sector Quarterly
- Urban Institute, Nonprofit Leaders’ Top Concerns Entering 2025
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Our operational audits look across the organization so leadership can distinguish the thing that is urgent from the thing that is actually causing the pressure, then sequence what to protect, stop, strengthen, and build.
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Norlander Wilson is a Behavioral Operations Strategist and founder of NJW Operations. She writes about the operational conditions underneath growth, leadership, capacity, and organizational pressure.