If your nonprofit has existed for some time, you probably have a number of basic financial management practices in place. You create an annual operating budget, file your Form 990 on time each year, and have a system for tracking the funds your organization spends and brings in day-to-day.

Once you have the essentials down, it’s time to level up your financial management to pursue sustainable growth. In particular, a deep understanding of your nonprofit’s revenue is vital to fund its programs and operations long-term.

In this guide, we’ll discuss some best practices for nonprofit revenue management to help you improve your processes. But first, let’s lay the foundation for these strategies by reviewing the main ways your organization can generate revenue.

The 5 Major Nonprofit Revenue Sources

Nonprofit revenue models are typically much more complicated than their for-profit counterparts. Most businesses make money in just a few ways, primarily related to investments and sales of products or services. Nonprofits, on the other hand, can have a much wider range of revenue streams, including:

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• Individual donations. This category includes all monetary gifts from individual donors (small, mid-sized, major, and planned), as well as event revenue and non-cash or in-kind donations.
• Corporate philanthropy. This encompasses all contributions from businesses, such as sponsorships, matching gifts, volunteer grants, and employee fundraising campaign revenue.
• Earned income. Although this funding source isn’t usually associated with nonprofits, it’s legal for your organization to earn revenue through channels like merchandise sales, membership dues, and fees for services provided.
• Investments. These also aren’t commonly recognized as nonprofit funding sources, but your organization can invest in and receive returns from mutual funds, treasury bills, stocks, bonds, and even cryptocurrency.
• Grants. Whether they come from foundations or government entities, grants are often critical for funding your nonprofit’s most important programs and projects—as long as you write a standout proposal to secure them.

Generally speaking, the more varied your nonprofit’s funding model is, the better. Diversified revenue provides much-needed financial flexibility for your organization. If one funding source falls through or unexpected expenses arise, you’ll have a stronger safety net to help you make up the difference. Plus, it’s easier to bolster your nonprofit’s reserve funds and prepare for future growth when you have revenue coming in from many places.

Nonprofit Revenue Management Best Practices

Diversification is just one essential strategy for managing your nonprofit’s revenue more effectively. Let’s look at a few more best practices to put you on the right track.

1. Keep Detailed Records

Understanding the five major categories of nonprofit revenue is also useful for recordkeeping, since it’ll help you keep your books organized. In addition to categorization, here are a few other ways to ensure your revenue records are in top shape:

• Use dedicated accounting software. These platforms allow you to easily store, analyze, and visualize your financial data in one place. Some accounting solutions are made specifically for nonprofits, while others were originally developed for businesses but can be customized for nonprofit use. Research the available systems to choose the right one for your organization.
• Perform bank statement reconciliations. When you get your nonprofit’s monthly bank statements, compare them to your internal records in detail. This way, you can quickly identify and resolve any discrepancies related to your revenue, such as undeposited funds, outstanding payments, or checks that are in your bank account but weren’t recorded internally.
• Understand the unique ways to record certain revenue types. For example, when you receive an in-kind donation, you’ll need to figure out its fair market value (the price you would pay for the gift on the open market) and record that as a debit em>and a credit to show that the gift resulted in a net zero gain in cash for your organization. Also, some revenue sources (like grants and investments) may require you to create separate management systems in addition to tracking the funding in your accounting system.

When you keep detailed revenue records in this way, you can report your nonprofit’s finances more accurately and make more informed decisions based on concrete metrics.

2. Recognize Revenue at the Right Time

Proper nonprofit revenue recognition goes beyond how you record funding—it also includes when you record certain types of revenue. In regards to timing, there are two types of revenue transactions you should be aware of:

• Contribution transactions occur when an individual or organization provides you with revenue without expecting to receive anything in return. Most individual donations, corporate giving revenue, and grants are contribution transactions. Record these funds as soon as you know the full amount you’ll receive, even if the money takes some time to arrive.
• Exchange transactions happen with the expectation that the contributor will receive something in return for their generosity. In addition to earned income, corporate sponsorships are typically considered exchange transactions because they need to be mutually beneficial to succeed, and some types of individual giving (such as event revenue and crowdfunding campaign donations involving incentives) also fall into this category. Record this revenue when the contributor receives what they were promised.

While these basic guidelines should get you started, some types of revenue are a bit more complicated to recognize, such as grants with contingencies, planned gifts, and situations where supporters pre-pay for services or merchandise (known as deferred revenue). If you have questions about how to record these transactions, consult a nonprofit accountant.

3. Be Transparent About Funding

Being open about your nonprofit’s revenue is critical for effective reporting and compliance. But even more than that, it can help you win support—according to Give.org’s 2024 Donor Trust Report, more than two-thirds of donors say it’s essential for them to trust a nonprofit before they give, and financial transparency is a critical aspect of trust.

Be transparent about your nonprofit’s revenue in your:

• Tax returns. In addition to being essential for your nonprofit to maintain its tax-exempt status, Form 990s are required to be publicly available for at least three years after filing so potential supporters can use them as a resource. While the IRS will automatically publish your Form 990 each year, consider linking to it on your website as well so interested stakeholders can find it quickly.
• Annual report. Include a financial section in your annual report that discusses your revenue, expenses, and associated accomplishments for the year. Highlight the most important data here, using charts and graphs to make it easier to understand. Then, attach more detailed financial statements as appendices to your report in case readers want to dive deeper.
• Appreciation messages. At the end of a fundraising campaign or event, share relevant revenue data in your follow-up communications with participants. This helps you emphasize that your donors made your accomplishments possible, which makes them feel valued.

If you don’t achieve your fundraising goals or experience other budget shortfalls, explain them clearly in these communications. Your supporters will likely appreciate your honesty and be more willing to come alongside you to help you raise more revenue in the future.

Knowing where your nonprofit’s funding comes from and following proper procedures for tracking and reporting it is critical for long-term financial success. Use the tips above to get started, and don’t hesitate to reach out to an accountant or other financial professional if you have any questions or need additional help with revenue management.