Did you know there are two types of nonprofits that must fundraise in two different ways? Of course, it’s not quite as simple as just that. But for our purposes today we’re going to split the nonprofit world into two camps: open loop and closed loop organizations.
While donors represent anyone who volunteers their time or financially supports an organization, today we’ll be discussing those who provide financial support. In addition, let’s define a “beneficiary” as the recipient of your organization or institution’s services. These are the people your organization exists to serve.
2 Types of Nonprofits – Open Loop and Closed Loop
Beneficiaries fall into one of two camps. They either have (or eventually will have) the ability to be a donor, or they will not. A humanitarian organization that serves the underprivileged, or provides international relief, has a beneficiary base who will likely never have the ability to provide material financial support back to the organization who helped them. That organization’s donors will come from another place. I call this an “Open Loop” organization, and very simply, it looks like this:
Some organizations and institutions serve beneficiaries who have, or will have at some point in the future, the financial means to be a donor. These include hospitals, higher education institutions, and many religious organizations like churches. I call these “Closed Loop” nonprofits and they look like this:
Generally speaking, most nonprofit donor bases are predominantly made up of donors who are either distinct from the beneficiaries that organization has served (Open Loop), or they are a subset of the universe of people who have been served by the institution (Closed Loop). There are always exceptions, but generally, most of your donors have personally benefited from or been impacted by your work, or they have not.
How it Impacts Your Acquisition Strategy
Your approach to acquisition has everything to do with whether you operate in the Open Loop or Closed Loop environment. Both have a unique benefit and a very real challenge, and require distinct approaches to acquisition. If you happen to have a number of donors that reflect both models, then your acquisition practices need to reflect both models via distinct campaign strategies.
Will your beneficiaries one day be your donors? This is an important distinction to make and is the first step in accelerating your acquisition.