When it comes to providing funding for nonprofits, many funders have let their desire to track impact override the needs of the organizations they support. They put heavy restrictions on what their funding can be used for so that they can draw a straight line from the resources they give to the outcomes produced.
But the story is rarely so simple.
Think of it this way. Restricted funding is like someone giving a gardener money and telling them they can only spend it on seeds. That way when the plants grow, the funder can point to them and say “we made that happen.” But it takes a whole lot more than seeds to make plants grow. It takes water and soil, someone to tend the garden, special tools, and knowledge. When funders put restrictions on how organizations can use money, nonprofits wind up with a whole lot of seeds and not enough of all the other stuff it takes to grow a garden.
Unrestricted funding allows organizations to spend money from funders however they see fit.
Often funders shy away from providing this type of support because they’re not sure how to track its impact. And it’s true that tracking the impact of unrestricted funding can be complex, but funders who are willing to lean into the complexity of social impact are the ones who will help nonprofits make truly transformational change.
The best part is: it’s still very possible to track the impact of unrestricted funds. It just requires you to step back a little and widen your lens. To return to the garden metaphor: Rather than trying to count each plant, unrestricted funding requires you to look at the health and wellbeing of the whole ecosystem of the garden and gauge how you contributed to it.
Unrestricted funding is the lifeblood for nonprofits
Unrestricted funding is money that a nonprofit can use for any purpose as long as it’s in line with their mission. It’s that simple.
This type of funding is often called “general operating funds.” It can go toward supplies, rent, staff salaries, technology, training, or any other expense that the organization needs to cover. It differs from “program funding,” which is funding earmarked for specific projects or programs and cannot be used for general expenses.
Having access to unrestricted funds helps organizations be both agile for the short term and sustainable for the long term. When they can direct the funds themselves, they can be responsive as community needs change. Plus, they can be proactive about investing in innovation and growth.
Take a holistic view of impact measurement
Tracking the impact of unrestricted funding means letting go of the idea that nonprofits are just the middleman that turn funder dollars into specific outcomes. Instead, funders must see themselves as part of an ecosystem that includes nonprofit partners and community members. That means shifting the focus on what you measure and how you assign value to the work.
1. See the relationship as the outcome
When funders cede control of how nonprofits spend their resources, it shifts the dynamic within the relationship to a more trust-based partnership. Nonprofits no longer feel like they are taking orders from funders. Instead, they are in collaboration with them.
This trust strengthens the relationship and makes space for deeper dialogue. Nonprofits are empowered to ask for what they need, and funders are in a better position to understand the impact of their efforts on an ecosystem level.
As an outcome, trust often gets overlooked. But the strength of the funder-grantee relationship is part of the impact of unrestricted funding. Once that trust is established, it opens up the possibilities in terms of future projects that leverage the strengths and resources of both organizations.
In the same way it can be difficult to track the impact of personal relationships, the effect of relationships in this space can be somewhat nebulous. But that doesn’t mean they should be discounted.
Rather than trying to quantify the impact of a strong relationship, trust that strong relationships have a naturally positive effect. So instead of looking at the outcomes of the relationship, track the ways in which you contribute to building a deeper and more trusting connection.
2. Tell more expansive impact stories
When it comes to unrestricted funding, telling impact stories is the best way to make your case for support. But you’re not looking to take full credit for the outcomes of a specific program or project. Instead, you want to measure how your contributions made the whole organization more resilient.
That might mean funding went toward operational costs. Covering those operational costs helps keep the nonprofit running and contributes to every program or project they support. So you can actually tell a much more expansive story.
Rather than trying to take full credit for one aspect of what a nonprofit achieves, show your impact by painting a picture of all that the nonprofit does and then show where your support fits in.
Don’t stop at just pointing to the nonprofit’s work. Connect with community members to find out how the organization you support makes a difference for real people. Remember, the most compelling stories are honest, human, and emotional. They should resonate with audiences, helping them relate to what you’re describing—whether it’s a personal story or an anecdote about a group you’ve helped along the way.
Here are some sample ideas and formats for how organizations share impact stories:
- An interview with a woman caring for her mother who has Alzheimer’s disease, where she describes having more time on her hands, thanks to a nonprofit’s support → a podcast episode or audio clip
- A story of a young man at the community center who enrolled in our youth enrichment program, saying he couldn’t have finished high school without it → a blog post with photos
- “Over the course of the year, we were able to serve over 3 million meals in six different countries around the world” → a thank-you compilation video
These anecdotes—no matter how small—serve as a foundation for building stories about how people’s lives are directly affected by unrestricted funding provided to a nonprofit.
3. Make nonprofit resiliency a goal
The nonprofits you support are doing good work that aligns with your mission. That’s why you chose them as partners in the first place.
In the same way that a strong relationship should be an outcome itself, the resiliency of the nonprofit should too. When a nonprofit can attract and retain staff, invest in technology, and plan strategically they’re in a better position to support community members.
So rather than asking nonprofit staff to continually report on the outcomes of their programs, ask the nonprofit how your contributions make the infrastructure of the organization stronger. This is a great way to tie funding directly to outcomes that you know will ripple outwards.
For instance, you know that if a nonprofit team can hire an extra staff person to help with administrative tasks, program leaders will likely have more time to spend building relationships within the community.
4. Focus on what you can realistically track
Telling impact stories to show the results of unrestricted funding means that the narrative is layered and complex. That’s a good thing! And though you want to know how you played a role, be mindful not to get lost in the work of connecting your input to specific outcomes.
Also, be sure that you’re not putting the burden of reporting onto nonprofits themselves. When you can, use their existing impact reports and other internal documents. Lean on casual check-ins and conversations, rather than trying to formalize all communication.
As you figure out what data is most useful to collect and track, keep your strategy on track by:
- Deciding what you can track based on the size of your team and the tools available.
- Pinpointing the most important outcomes so you can align impact areas with goals.
- Analyzing, not just tracking. Collecting data is important, but only when you commit to regularly reviewing it and pulling out trends.
Find tools that help you track the impact of unrestricted funding
As funders take a more holistic approach to measuring their impact, they need tools that can capture a story of depth and complexity without making things complicated.
Submittable is a grant management software built to help funders forge and fortify deep relationships with community organizations. With impact reporting that captures both qualitative and quantitative data and tools for seamless collaboration, it’s the ideal platform for grantmakers who are interested in taking an ecosystem-level approach to their work.
Laura Steele is a social impact writer and editor at Submittable focused on the world of grantmaking and corporate giving. Her work often explores the connection between technology, equity, and social good. She also writes fiction and nonfiction. You can read some of her stories and essays at laurapricesteele.com.