Linking Nonprofit Operations and Donor Preferences to Improve Societal Benefits

Nonprofit organizations (NPOs) depend on grants, voluntary contributions by donors, and fees for services as primary sources of funds to undertake their activities. Donors adopt different approaches to fund nonprofits, with some of the large donors making funding contingent on outcomes achieved. In addition to limited funds being available, NPOs also face challenges in the allocation of such funds to various activities given many competing priorities and conditions that donors impose. In this chapter, we consider the different funding models adopted by donors, how the various constraints that donors place affect the use and allocation of funds by NPOs, and NPOs’ operational decisions and the societal benefits. Our discussions showcase that a better link between operations of NPOs and preferences of donors can enhance the impact delivered to beneficiaries. Overall, we present insights for (i) NPOs on how to relook at their operational strategies in light of growing attention on maximizing long-term impact (versus short-term outcomes) or ensuring equity (versus efficiency), (ii) donors on various unintended consequences of rewarding efficiency or placing restrictions on use of their donations, and (iii) scholars investigating nonprofit operations on the value of connecting funding strategies of donors with operational strategies of NPOs.