The Case for Productivity-Based Funding Models

In grant seeking, there are few absolute rules. But one adage stands out: "You can't win if you don't apply." So yes, we can all agree that submitting proposals is essential, but success requires more than just applying. This is where “best practices” come into play—guidelines to improve your nonprofit’s chances by strategically aligning with the right funders. Among these best practices is a commonly accepted idea: Avoid submitting “cold” proposals to foundations or corporations with no history with your nonprofit and no prior contact. Generally, developing relationships with potential funders before submitting a proposal significantly increases your chances of success. However, exceptions exist—and understanding when and why to submit a “cold” LOI or proposal is worth exploring. The Case Against Cold Proposals The rationale behind the "no cold proposals" rule is straightforward. There are far more grant seekers than grantmakers. Many foundations and corporations give repeatedly to the same organizations they already know and trust, making it challenging for new applicants to break through. Consider a 2019 article from Grant News, which cites data released by the Ford Foundation, where in one year, Ford received 144,000 inquiries, including email requests, LOIs, and full proposals, and awarded less than 3,000 of these inquiries, an award rate of less than 2%. Not every foundation/corporation has award rates as low as the Ford Foundation, so if we go with the working hypothesis that the odds are less than 10% for foundation/corporate grant funding, which is probably on the high side for an award given to “cold” inquiry, it’s clear why relationship-building is considered essential. Establishing rapport with program officers lets you understand a funder’s priorities and tailor your application accordingly. When Cold Proposals Make Sense Despite the odds, there are situations where submitting a cold proposal can make strategic sense. In a Fall 2024 article in the Journal of the Grant Professionals Association, a seasoned grant professional, Valerie A. Grant, offered a compelling argument for cold applications. Her consulting firm submitted 270 grant applications for various nonprofit organizations over 19 months between 2022 and 2024 and tracked outcomes. Of the 162 responses they received, 7% of cold applications—submissions without any prior relationship or contact—resulted in funding. While this percentage is small, it demonstrates that cold proposals can occasionally be successful. Grant noted that the key to success with cold applications lies in the research and vetting process. Her team only submits cold proposals when the funder’s priorities align closely with the nonprofit’s mission. They also see these proposals as initiating the relationship-building process, as submitting a cold proposal can be the first of several communications that eventually open the door to grant funding. Small Nonprofits: A Special Case Cold proposals may be necessary rather than a choice for small nonprofits with limited resources. Consider a local nonprofit with an operating budget under $500,000 and minimal staff. Such organizations may lack the connections to secure warm introductions to funders. However, if they provide critical services addressing a clear need in their community, cold proposals may be their only viable option. For example, the Teddy Bear Cancer Foundation in Santa Barbara, CA, is a small nonprofit providing financial assistance to low-income families with children undergoing cancer treatment. Despite having limited access to well-connected board members or major donors, they consistently sent “cold inquiries” to the same local foundations in the early 2000s, many of which only accepted letters by mail and eventually secured grants through persistence. Large Institutions: Another Exception At the opposite end of the spectrum, large, prominent organizations can also benefit from cold proposals. Major museums, universities, and hospitals often have well-established fundraising infrastructures but may find it worthwhile to pursue cold applications as part of a long-term strategy. Funders tend to perceive these institutions as trustworthy and capable, increasing the likelihood that well-crafted cold proposals will be considered, especially if the organizations demonstrate persistence by reapplying over several years. Cold Proposals as a Long-Term Strategy Cold proposals should not be a primary strategy but rather a component of a broader, long-term approach to grant-seeking. Persistence can pay off for organizations willing to invest the time and resources to submit proposals year after year, even without initial responses. However, nonprofits must be realistic about the time and effort involved. Cold proposals often have a high rejection rate, and many funders do not even respond to unsolicited applications. Organizations must weigh the potential benefits against the resources required to pursue this approach. Qualifying Funders for Cold Proposals When considering whether to submit a cold proposal, qualifying potential funders is essential. Use tools like the Foundation Directory Online or GrantStation to research funders’ giving histories and priorities. Find alignment between your nonprofit’s mission and the funder’s focus areas. If a funder’s 990 form lists only a mailing address and no email or phone contact, you must decide whether the potential payoff justifies the effort. Valerie A. Grant’s data underscores the importance of being strategic. While only 7% of the cold proposals were successful, 52% of their proposals were successful when the organization had a prior relationship with the funder. Yes, cold proposals have a lower success rate, but they can still yield results, especially if you have done your homework and are committed to ongoing stewardship and relationship-building. Final Thoughts The decision to submit cold proposals should not be taken lightly. Building relationships with funders is a more reliable path to success for most nonprofits. However, for small organizations with limited networks or large institutions seeking to diversify their funding sources, cold proposals can be a worthwhile part of a comprehensive grant strategy.

We’ve all heard the saying: If you give a man a fish, you feed him for a day; if you teach a man to fish, you feed him for life. This tidy little phrase promotes the idea that teaching self-sufficiency is better than providing short-term solutions. It’s tempting to embrace the idea that empowering people with skills is the key to long-term success, but this aphorism oversimplifies the real world. What if the water is polluted or overfished? What if we’re teaching people to fish who are struggling with personal challenges like addiction, mental health issues, or family trauma? Without addressing external barriers or personal struggles, teaching someone to “fish” is like handing them a roadmap to a journey filled with blocked roads and dead ends. For grant professionals focused on supporting workforce development or social service programs, the challenge is clear: How do we effectively address complex social issues that call for far more than "teaching skills" or carrying out other types of limited-impact interventions? The nonprofit and governmental sectors address deeply entrenched issues like poverty, systemic inequality, and lack of access to resources. These problems are multifaceted and interconnected, making them difficult to address with any single solution. It can be tempting to shift focus to less complicated projects—planting trees, painting murals, or organizing community events. While these kinds of projects improve the quality of life in small ways, they don’t hold the potential for transformational change that addressing systemic social problems can bring. As Thomas Kuhn outlines in The Structure of Scientific Revolutions , true progress isn’t achieved through incremental adjustments to a failing system. Instead, it often requires a paradigm shift—a complete overhaul in thinking when the old models can no longer accommodate the complexities or anomalies we encounter. Kuhn’s theory suggests that societal change mirrors scientific progress: we can’t continue working within outdated systems expecting better results. At some point, the structures must be challenged and, where necessary, replaced. Failure, in this context, isn’t something to fear—it’s something to embrace. Every “failed” grant project, every initiative that doesn’t quite achieve its goal, offers valuable data. This data helps us refine future approaches, allowing us to get closer to real solutions. We must also acknowledge that change often comes from the margins, not the center. Kuhn argues that scientific revolutions don’t come from within the existing power structures but from innovators and thinkers on the edges, those willing to challenge the prevailing norms. The same holds in social work. Grant professionals often work with underfunded, grassroots organizations—groups that are pushing boundaries and trying new approaches. These are the organizations that can disrupt the status quo and create real change, even if they don’t follow the linear, measurable outcomes funders might expect. The results of our work may take years to manifest or may appear in unexpected ways. This is where the creativity and flexibility of grant professionals come into play. We can guide our organizations to see beyond immediate, short-term metrics and focus on the broader, long-term impact. Ultimately, real change isn’t about teaching people to fish in polluted or empty waters. It’s about challenging the systems that led to contaminating or overfishing of those waters in the first place. As grant professionals, we’re in a unique position to push for that change—working at the edges, fostering creativity, and helping to spark the paradigm shifts that make true progress possible.

According to a 2023 Donor Advised Fund (DAF) report by the National Philanthropic Trust, more than $229 billion is currently held in DAFs, with donors giving nearly $86 billion to DAFs in 2022, compared to $45 billion to private foundations. The report indicates over a quarter of all individual giving now goes to DAFs, far surpassing private foundations as the favored charity vehicle for the wealthy. This trend presents a significant challenge for charitable nonprofit organizations that rely on philanthropic giving. Once funds are contributed to a DAF, the DAF is not obligated to distribute them to charitable nonprofit organizations. Donors benefit from a tax deduction upon contributing to the DAF, but no further tax incentives are tied to actual disbursements. Thus, billions continue to accumulate in DAF accounts without benefiting anyone other than the financial managers of these portfolios, which typically keep a percentage of the assets. Despite the growing popularity of DAFs, most Americans are unaware of how the lack of accountability for DAF distributions is diminishing the ability of charitable organizations to address urgent societal needs, as large sums of money in DAFs are either delayed or may never fully reach nonprofits. To raise awareness around these issues, 60 major nonprofit organizations are leading the effort to organize the first-ever DAF Day on October 10, 2024. Saltzberg Consulting is sharing the link here for nonprofits to register for DAF Day. On the DAF Day digital platform, nonprofits can list and describe themselves in the participant directory and be eligible for DAF gifts. Just as important, DAF Day offers DAF donors/advisors the chance to actively promote the distribution of the $229 billion currently held in DAF accounts in a highly visible, public manner. Once registered , donors can browse a directory of participating nonprofits, choose organizations to support, and make their contributions. Donors will be encouraged to disclose the amount they give on DAF Day and the nonprofits they support, promoting transparency. By taking part in DAF Day, donors will play a crucial role in mobilizing these funds for philanthropic action and contributing to solutions for pressing societal challenges.

Suppose you have decided to hire a grant writing company or freelancer. In that case, you may wonder about the best way to pay. First, your organization and the grant writing company will need to agree to the scope of the services and how much you will pay and sign a contract with the terms of the agreement. One of the details outlined in the contract is the payment terms. When is payment for grant writing expected? Grant writing companies differ a lot in when they take payment. They may require all or a portion of the price at the beginning. They may send you an invoice at the end of the project. They may offer a payment plan or a retainer fee for a certain amount of services provided. At SGR, we charge either all or 50 percent of the payment for federal grants before a project begins. The length of the project determines the remaining costs. When the project is near completion, the final payment is due. Our retainer packages have quarterly payments. How is payment received? Grant writers and grant writing companies may take payment via check, money order, or electronic payment. There is little difference between paying a grant writer and another service provider. At SGR, we send and accept electronic payments via ACH, bank transfer, or credit card. Are grant writers paid on commission or a percentage of the grant award? We can guarantee that most grant writers expect payment when services are delivered. Which means grant writers do not work on contingency (paid if the grant is awarded) or commission (paid a percentage of the grant award). This is because many grantmaking organizations only allow grant funds to pay for services provided after the award, which excludes grant writing. Therefore, nonprofits should pay for grant writing services whether a grant application is accepted or declined. As members of the Grant Professionals Association, our organization adheres to the GPA Code of Ethics , which states the following regarding compensation.: "Compensation: 17. Members shall work for a salary/wage or fee. Pro bono work is also allowable. 18. Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accordance with prevailing practices within the members' own organizations and are not based on a percentage of grant monies. 19. Members shall not accept or pay a finder's fee [3], commission [4], or percentage compensation based on grants and shall take care to discourage organizations from making such payments. 20. Compensation should not be written into grants unless allowed by the funder." How can my organization afford a grant writer? Nonprofits may pay for grant writing services from cash on hand, unrestricted funds, individual donations, general operating funds, earned income, or from their salary accounts. In addition, some organizations can apply for capacity-building grants to hire a grant writer. The majority of SGR's grant-writing customers are established organizations with multiple sources of revenue. They pay for grant writing with cash on hand, operating funds, and unrestricted funds. Key Takeaways Knowing how and when you will need to pay for grant writing is as important as picking the right grant writer. How to pay for grant writing will differ by each company or freelancer The details will be outlined in your contract or agreement. A few things to remember: 1) Grant writers are discouraged from working on commission or contingency, so most charge an hourly rate or flat fee; 2) You can expect to pay for a portion or all of the fee upfront before services start. There may be payment plans available or retainer packages for long term projects; and 3) Your organization should set aside funds to cover the cost of the contract from an approved expense account.

I wanted to share this article by Alan S. Davis, president of the Leonard and Sophie Davis Fund and board chair of the Excessive Wealth Disorder Institute, which appeared in Candid's Philanthropy News Digest . It points out that while involvement of the ultra-wealthy in philanthropy can bring tremendous positive change, this generosity should be accompanied by a sense of responsibility and civic duty. This isn't always the case. Davis describes the situation this way: Many Americans generously contribute to various philanthropic causes, driven by the desire to make a positive impact, whether through small acts of kindness or significant monetary donations. However, the concept of charity can have a different meaning for the ultra-rich, often becoming a calculated strategy to accumulate wealth disguised as philanthropy. While contributions made by the wealthy play a crucial role in supporting nonprofit organizations, hospitals, and educational institutions, it comes at a substantial cost. For every $100 donation made by a wealthy donor—with at least $2 million in annual income—they can receive $40 in tax breaks and up to $90 if they donate certain types of stock. Americans in lower income brackets, if they itemize charitable deductions at all, receive considerably less for their charitable giving. Visit Candid's Philanthropy News Digest to read the full article, which points out how remarkable progress could be achieved in addressing the world’s most pressing challenges, if more of the ultra-wealthy engaged in genuine philanthropy.

Imagine you’ve earned a competitive bonus at work. You’ve spent time demonstrating your worth and value to the organization, and finally, your hard work has paid off. Then, your supervisor tells you—as if you must have known—sure, you’ll earn an extra $8,700, just as soon as you pay us $1,800 of your own money. This scenario parallels what happened to my organization when applying for a federal grant—multiplied by 10. After months of effort on my part as a development professional, and that of my colleagues, we were ecstatic to receive nearly $87,000 in funding from the Federal Emergency Management Agency (FEMA). I worked at a synagogue, and we planned to use the funds to renovate our building so as to be more secure and protected from antisemitic attacks (which increased by 275% in NYC in 2021). Later, we were informed that $18,000 of the total grant originally awarded was no longer permissible under the terms of the grant. That amount was to be used for maintaining compliance with landmarks rules—a requirement for renovation of any building with historic significance—which FEMA said was not directly applicable towards preventing terrorism. As that budget line was integral to the execution of the project, if we wanted to complete it and receive the remaining funds, we would have to pay. Fortunately, I worked for a large organization, and they were able to provide the additional $18,000 from the capital budget. Yet, if it were a small grassroots organization, what would we have done? Due to the investments required, the unfortunate reality is that those organizations which most need the funding may be least likely to receive it. For many small organizations, this cash outlay would be impossible. Furthermore, the scenario described above only becomes an issue if an organization is able to receive the grant in the first place. This itself would be extremely difficult without funds to hire a professional grant-writer and/or the capacity to devote staff hours towards development. Grants should not only be accessible to large, established groups. The disparity between large and small organizations is also related to race and diversity, as leaders of color report smaller budgets on average than white nonprofit leaders. Also, unrestricted net assets of Black-led organizations are on average 76% smaller than those of white-led organizations. Edgar Villanueva, author of Decolonizing Wealth, has coined the term “racial philanthropy gap.” There is abundant evidence that this funding disparity is pervasive, both between large and cemented organizations when compared to small and grassroots ones, as well as between white- and BIPOC-led organizations. For instance, only 9 to 12% of funding from the 1,000 largest U.S. foundations goes towards projects that are intended for minority populations. The barriers to entry for fruitful grant applications are quite high. There is a capacity paradox whereby an organization with small capacity can’t apply for and receive a grant, and therefore can’t use the funds to increase their capacity, thus perpetuating this cycle. A smaller organization would be faced with much tougher choices than mine was: should they invest the money to hire a grant-writer to increase the chances of receiving the grant, or should they delegate the responsibility of grant writing and additional work hours to a singular development professional, or even their executive director? Worst of all, even if they do receive the grant, will there be sufficient flexibility in the budget to produce the additional resources needed? To be clear, I do believe that funders genuinely want to distribute their money to those applicants who propose the best ideas and the strongest projects, and not just the most visible candidates or established organizations. In fact, in the last two decades, FEMA has distributed over $54 billion to organizations across the country, large and small, to prevent domestic terror attacks. I urge funders—whether governmental or as trustees of a foundation—and the philanthropy sector as a whole, to actively combat the ways in which the cards are stacked against small organizations. One of the most effective ways for funders to do so is by diversifying their boards of directors and ensuring they are representative of the target population. Homogenous boards are susceptible to groupthink, which makes them less effective in serving their communities. I also recommend that when reviewing grant proposals, funders group organizations by the size of their annual budgets and select winners from each category. This way, small organizations are compared to one another rather than to larger organizations, and we can begin to level the playing field. When traditional power structures are challenged in this way, barriers to entry for receiving equitable funding fall away. Increasing representativeness among those who distribute the resources should result in a more equitable distribution of those resources, and ultimately, that the true recipients will be those people we set out to serve. It is my hope that, beginning with this small step, grassroots organizations run by people of color could be funded as thoroughly as larger organizations with pre-existing resources. The original posting, can be found on the Wagner Review website.

In February 2022, Elise Saltzberg and several other nonprofit professionals testified in support of Maryland Senate Bill 245, which would provide much needed funding to the NIMBL program. (To learn more see our 2018 post Interest-Free, Micro Bridge Loans Now Available for Maryland Nonprofits! ) Nancy Easterling is the Executive Director of Historic Sotterley, Inc. Her testimony before the Senate was so compelling that we invited her to share her experience of NIMBL with our readers. For the past 13 years I have served as the Executive Director for Historic Sotterley, Inc., a 300-year-old National Historic Landmark, UNESCO Site of Memory for the Slave Route Project, and historic museum site which interprets our complex, and often difficult, shared history. Sotterley offers a full range of programming to include education programs and field trips, tours, cultural events, recreational opportunities, a working farm that donates produce to our local community, our Common Ground Initiative supported by our Descendant community, and much more. Historic Sotterley is truly an exceptional educational and cultural resource for our community, our State, and our Nation. Historic Sotterley is unlike many museums, however, in that it is not owned by a county, state or federal government, and its does not have an endowment to support its operations. This means we need to earn and work for every dollar to support our efforts and our mission, and this makes for a pencil-thin budget with often no reserve accounts to serve as a cushion. Despite our challenges, we have never wavered in our dedication to improving how we serve our community, and we have made many advancements over the years of which we are incredibly proud. Generous grants have been responsible for many of these important projects and advancements. There are many grants which I have hesitated to apply for, however, because I know that most governmental grants work on a reimbursement basis which is difficult for small organizations like ours. Cash flow is everything for a small nonprofit, and we typically do not have funds in reserve to fall back on. It can sometimes take months and months after paying a bill to work our way through the reimbursement process, and we have had to draw on our operational line of credit which then incurs interest payments we will not be reimbursed for, as well as tying up our line of credit and making it unavailable for critical operational expenses such as payroll. We have even had to delay paying other bills when funds became too tight, hoping somehow that the people to whom we owe money will be understanding. When the Nonprofit Interest-Free Micro Bridge Loan (NIMBL) program became available, needless to say I was ecstatic, and to date we have used it twice. The first time was for a $100,000 Bond Bill from the State, and while we were about halfway through the project at the time we applied, it was getting harder and harder to make cash-flow work. The NIMBL funds did not see us entirely though the project, but it helped us through a difficult period. We applied for our second loan to support our $100,000 African American Heritage Preservation Program grant, and this time we had to wait until others repaid their loans before funds could be made available since the pool of funds was so small. I quickly went through the $25,000, but I had to pay it back as soon as I received our grant reimbursements and could not continue to recycle these funds throughout the course of the grant. I was incredibly grateful to have received both loans, but if more funds become available for NIMBL, perhaps the loan amounts can be increased, or repayments delayed, allowing for continued use of loan funds. NIMBL has been a godsend to Historic Sotterley and it can offer the same relief for other nonprofits, all of which are serving our communities and making them a better place, but which need help with cash flow during their governmental grant projects.

UPDATE: October 2021: Henry Bogdan, Director of Public Policy at Maryland Nonprofits, has identified some of the drawbacks to the ACE Act. In the interest of reining in the for-profit companies that have zero incentive to encourage donors to ever give money to charities out of their DAF’s, the ACE Act may also hurt some community foundations, Jewish federations, and other organizations that do have a charitable mission. Read his statement here: https://www.marylandnonprofits.org/ace-act-highlights-the-problem-of-commercial-actors-in-donor-advised-funds/ In our December 2020 blog post ( “It’s Time for Foundations and Donor Advised Funds to Give More!” ) we urged readers to sign a petition asking Congress to change the tax code to channel billions of dollars to worthy causes – dollars that are warehoused in Donor Advised Funds (DAFs), where they can remain forever under current tax rules. The GOOD NEWS is that a bipartisan bill has been introduced in the US Senate known as the “Accelerating Charitable Efforts Act” or the “ACE Act,” which will change the rules for DAFs. What’s In the Act The ACE Act goes right to the heart of the issue with DAFs. Under the current Internal Revenue Code, donors receive a tax deduction when they contribute money to their DAF. But there is no incentive for them to ever distribute these funds. As a result, this money is only benefitting the financial institutions that manage it, not the charitable organizations that should receive it. According to the Associated Press: “That criticism has helped drive a Senate bill that would tighten the rules for DAFs and aim to speed the transfer of donations to charities. The bill, introduced by Sens. Angus King, a Maine independent, and Chuck Grassley, an Iowa Republican, appears to be gaining bipartisan support in Congress.” The provisions of the ACE Act are hardly onerous, and only apply to DAFs over $1 million. Wealthy donors will still be able to take tax deductions upfront, but they must distribute DAF funds in a timely manner. Why it Matters As the holder of a DAF myself, I’m mystified that any donor would choose not to distribute their funds, especially as the money can’t be use for anything else. But that’s what’s happening: There’s an estimated $142 billion sitting idle in DAFs – money that could be doing so much good in the hands of charitable organizations. Opposition to the Act Sadly, not everyone supports the ACE Act. An appalling number of foundation and nonprofit leaders want to retain what amounts to a pointless tax deduction for wealthy donors – instead of channeling much needed funds to organizations that support the most vulnerable among us. Opponents of the Act claim that tighter restrictions on DAFs are unnecessary because the average annual payout rates are around 20% – way above the 5% that’s required for private foundations. But that 20% number is deceptive. Some donors send a large percentage of their funds to charities every year, and their DAFs are essentially a pass-through. Others give nothing at all, and legally they can do nothing for decades. Again, according to the Associated Press, “A June report by the Council of Michigan Foundations showed that 35% of DAFs sponsored by Michigan community foundations distributed no money in 2020, a year marked by enormous need because of the viral pandemic.” Revising DAF tax breaks is more important than ever. In the past decade, there’s been a 300% growth in DAF accounts. More than 12% of charitable donations now go into DAFs. The more money that flows into DAFs, the greater the need to require disbursement. From what I’ve seen,, the bill’s main opponents are for-profit companies and other entities that garner a percentage of every dollar that is sitting in a DAF. If DAFs paid out more money, there would be less money to collect these fees on. Personally, as a DAF holder, I want my money to go to worthy causes, not financial institutions! Voice Your Support on Social Media If you agree that the ACE Act is ultimately in everyone’s best interest, show your support on social media. Raise awareness by publicly calling out the ACE Act’s opponents in Congress. Here are suggestions for what to say and which representatives to focus on: https://bit.ly/3lW005M

Fundraising is challenging enough without application forms that waste time and cause confusion. #FixTheForm is an international, grassroots movement aimed at streamlining the grant seeking process for the benefit of funders and fundraisers alike.