New ESMT Berlin research shows why holding on to loyal donors is not the right advice for every nonprofit

The study was co-authored by Eric Quintane (ESMT Berlin), Gloria Urrea, and Sebastián Villa (both University of Colorado Boulder). The paper, “Focused versus Diversified Nonprofit Organizations: Aligning Operations Strategies with Donor Types,” has been accepted for publication in the peer-reviewed journal Production and Operations Management. The researchers analyzed 20 years of grant data (2000 to 2020) from the UN’s Financial Tracking System, covering more than 3,300 humanitarian nonprofits and 1,255 institutional donors such as governments and foundations. 

The researchers distinguish between focused nonprofits, which concentrate on a single service such as water and sanitation, and diversified nonprofits, which run several programs at once, such as education, health, and emergency response. They also distinguish between new donors, who fund an organization for the first time, and stable donors, who have given consistently over several years. 

The results show a clear pattern. Focused nonprofits are efficient, but their narrow scope leaves them exposed when donor priorities shift. For them, each additional new donor, in place of a stable one, was associated with about 3 percent higher annual funding, or roughly $190,000 for an organization receiving the sample average of $5.9 million a year. Diversified nonprofits already have flexibility across programs but face higher coordination costs. For them, the same shift was associated with about 3 percent lower funding, which the authors attribute to stable donors helping keep coordination costs low. 

“Fundraising advice often treats donor loyalty as a universal rule,” says Eric Quintane, associate professor at ESMT. “Our results suggest the opposite: the most valuable donors are the ones that compensate for what an organization’s operations strategy is missing. Focused organizations need new donors to reduce their exposure, while diversified organizations benefit from the routines that stable donors bring.” 

In an additional analysis of 230 U.S.-based organizations, the pattern held for smaller, resource-constrained nonprofits but not for larger ones, which may be better placed to pursue new and stable donors at the same time. Interviews with nine fundraising managers worldwide are consistent with these findings. Managers of focused organizations described new donor outreach as a hedge against relying on too few funders, while managers of diversified organizations described long-term donors as a way to manage the complexity of running many programs. None of the managers was willing to change their organization’s core services to attract funding. Instead, several described adapting their fundraising approach rather than their services. 

The findings come at a critical moment: with USAID shut down and the U.K., France, and Germany cutting their humanitarian aid budgets, nonprofits are competing harder than ever for a shrinking pool of funding. The researchers’ advice is to start with the organization’s own profile. Focused organizations should actively build a pipeline of new donors, while diversified organizations should deepen relationships with the donors they already have. These are differences in emphasis, not either-or choices, and the results show associations rather than proven cause and effect.