Conventional fundraising wisdom says diversify your revenue base to reduce risk. Recent research on how nonprofits actually reach significant scale tells a more complicated story, and the nuance matters for anyone building a growth strategy for a mission-driven organization.
The scale data says concentration, not diversification
A 2024 Bridgespan study, building on its original 2007 research, found that the number of US nonprofits founded since 1990 to reach USD 50 million or more in annual revenue rose from 144 in the earlier analysis to 297 today — roughly doubling. The organizations that got there shared a pattern the study’s authors highlight explicitly: they concentrated in one or two revenue categories rather than spreading thinly across many, then diversified within that category — for example, multiple government agencies rather than multiple government agencies plus corporate plus earned income plus major gifts all at once.
The counter-argument the academic literature makes
This sits in real tension with a separate body of research. Multiple peer-reviewed studies on nonprofit finance link revenue concentration to higher volatility and greater risk of financial distress, which is where the common practitioner rule of thumb comes from: keep no single revenue stream above roughly 25-30% of total budget. That rule has real teeth right now — recent reporting suggests roughly one in three US nonprofits experienced a disruption to government funding in early 2025, and many organizations hold three months or less of cash reserves to absorb a shock like that.
Reconciling the two findings
Both bodies of evidence are correct, and the reconciliation is the actual lesson. Diversifying across categories (government, corporate, earned income, individual giving) spreads risk but also spreads organizational focus and fundraising cost thin, which is a real drag on getting to significant scale. Diversifying within a single category — several government contracts from different agencies and departments, rather than one contract, or several corporate partners in a sector rather than one — captures much of the same risk protection without diluting the organizational focus that scale requires. The mistake most growth strategies make is treating “diversify” as a single instruction, when the category-level choice and the within-category choice call for opposite instincts.
A three-question test before chasing a new revenue category
Before adding an entirely new category of revenue — a nonprofit that has only ever done government contracts deciding to start a corporate-partnerships function, for instance — three questions are worth answering honestly. Does the organization already have credible expertise in this category, or would it be building that expertise from zero at the same time it tries to close deals in it? Would this new category, at a realistic size, actually reduce the concentration risk that is a genuine threat, or is the current concentration already inside a defensible range? And is there a lower-cost way to diversify within the existing category first — a second government funder, a second major corporate partner — before absorbing the cost of building a whole new fundraising discipline?
| Strategy | What it protects | What it costs |
|---|---|---|
| Concentrate in 1-2 categories | Organizational focus, fundraising efficiency, path to scale | Exposure to a category-wide shock (e.g. government budget cuts) |
| Diversify within a category | Single-funder or single-contract risk | Modest — extends existing expertise rather than building new |
| Diversify across categories | Category-wide shocks across the board | High — splits focus and fundraising cost across disciplines |
Frequently asked questions
So is the 25-30% single-source rule wrong? No — it is a sound floor for single-source risk. The refinement is applying it within a category (no single government contract above 30% of budget) rather than treating every category as equally worth adding for its own sake.
Does this apply below the USD 50 million scale the Bridgespan study looked at? The logic holds at any scale: a three-person nonprofit with two anchor funders faces the same category-versus-within-category choice as a $50 million organization, just with fewer relationships to work with.
Takeaways
- Scaling nonprofits concentrate in one or two revenue categories rather than spreading across many.
- They diversify within a category, not across categories — that distinction is the actual risk-management lever.
- The 25-30% single-source cap is still sound advice; apply it inside a category, not as an argument for adding new ones.
- Before adding a new revenue category, exhaust cheaper within-category diversification first.