Competition for donations and the sustainability of not-for-profit organisations

Purpose - The financial sustainability of NPOs is problematic, both individually and in economy-wide terms, as they do not produce commercial saleable outputs. Instead they raise funds by either relying on government grants or competing for private donations. Sustainability of NPOs becomes an even greater issue when governments reduce their grant giving in times of stress - precisely the time when calls on NPOs' resources increase. Consequently the present purpose is to understand the nature of competition for private donations that occurs between Not-for-Profit Organisations (NPOs). This competition occurs because NPOs do not produce commercially viable outputs and therefore rely on donations. Design/methodology/approach - The research asks the question, do donation raising expenditures by NPOs increase donations or do they damagingly divert donations from other NPOs? Using Australian data, competition between NPOs for donations is analysed using a modified oligopoly market model. NPO fundraising expenditures are central to this model, but other factors, including unpaid-volunteers, organisational size and age are also explanatory variables in determining success in fund raising. NPOs concerned with human welfare, other than specialised aged care, are the primary focus of this paper, although other NPOs such as those concerned with animal welfare, science and the arts are also modelled. Findings - Crucially a NPO's fundraising expenditure has a direct and positive impact on its level of donations. A major influence on level of donations is the presence of volunteers within an NPO. There seems to be an interesting reciprocal relationship between the effect of size and age of organisations on their donations and the effect on fundraising. Critically for sustainability, NPOs competing for funds are established as having a negative effect on the level of donations to other NPOs with similar functions