The Latest on the Health of the Nonprofit Sector

Observations about Independent Sector’s report

Academics and others concerned with the nonprofit sector face challenges due to the overall lack of research and current data available. As in other areas of nonprofit practice, nonprofit research is under-resourced. So, it is valuable when credible national and local reports are developed to help us better understand the composition and behavior of our sector as well as data trends.

Independent Sector recently released its Annual Review of the Health of the Nonprofit Sector. The report draws on a range of national research such as the Aspen Institute’s National Survey of Nonprofits Trends and Impacts, Giving USA, etc. It addresses a range of issues of interest to IS, including general statistics about the sector and workforce and data on focus areas of governance, trust in the sector, and public policy advocacy activity by nonprofits.

The data affirms trends that many of us are already well aware of regarding the economy (revenue is down) and the workforce (still too many underpaid workers).

Nonprofit Revenue

Where does nonprofit revenue come from? We need statistics on where the sector’s revenue comes from so that we can make realistic decisions about how to focus fundraising and earned income strategies to maximize return on effort. I have observed as a consultant that board members can have some interesting ideas, often overestimating the importance of certain revenue streams (most often, foundation grants and corporate contributions). I often share the graphic below from the National Council of Nonprofits’ report Nonprofit Impact Matters to give clients some perspective, with the caveat that different types of nonprofits rely on different mixes of revenue. As you can see, it may be a mistake for an organization to pin its hopes for future fundraising success too heavily on foundation revenue (2.9% of nonprofit revenue) and corporations (.9%).

So, I was surprised to see this second chart (pie chart below) in the IS Health of the Nonprofit Sector report. It seems quite different. Why?

By investigating further, I was able to determine that the discrepancy probably lies primarily with the methodology. The universe of nonprofits from which the data is drawn is different. The second chart (the pie chart) is based on a representative survey of nonprofits that “excludes foundations, as well as hospitals, higher education institutions, schools (day cares, preschools, and K–12 schools), churches and other houses of worship, and other nonprofits with unique business models and contexts.” Hospitals and educational institutions are segments of the nonprofit sector that have larger institutions and both rely more heavily on earned income (fee-for-service and tuition). Apparently, they also receive a larger share of government grants (or at least, they did until recently).

It is important to look critically at the data that comes out and think about its meaning for your organization. I do find it interesting to see the revenue mix excluding the “Eds and Meds” as we know these large nonprofits can sway overall economic and workforce data on nonprofits. Think about which chart feels most relevant and accurate for your industry as you model your revenue mix.

Nonprofit Workforce

Most of us have significant concerns about the overall status of the nonprofit workforce and wage levels. Unfortunately, as noted by IS, this is an area where recent data is hard to come by, making it difficult to say too much about how recent changes to federal policy and funding are affecting nonprofits, though widespread layoffs clearly happened in response to federal funding cuts.

I was interested in a statistic highlighted in the report that “1 in 5 nonprofit workers live in households experiencing financial hardship.” I want to unpack this statistic a little in case you are curious as well. This comes from a September 2024 report by IS and United for ALICE. ALICE stands for asset-limited, income-constrained, employed—a category that describes working people above the federal poverty line who do not make enough to meet their basic needs. Their research reveals that 22% of nonprofit workers are financially insecure (below the “ALICE threshold of financial survival”). Clearly, we should be concerned about any workers who are not earning enough to cover their cost of living. It is particularly ironic that in some cases nonprofit workers may qualify for the very social assistance programs that nonprofit offer to ameliorate poverty. We can and should do better.

The context here is also important: the rate of government workers below the ALICE threshold is 20%, and the rate for private sector workers is higher at 27%. Improvement is needed across all sectors. The nonprofit sector is not worse than others, we are likely just more appalled to be implicated.

To learn more about current workforce issues in the nonprofit sector, I also recommend Seattle-based Aparna Rae’s recent article in Forbes, The Invisible Job Crisis: America’s Third Largest Employer is Hemorrhaging Talent.

The Rest of the Report

The IS report has some interesting data on public trust. Nonprofits continue to enjoy higher levels of public trust than other sectors, but there is rising suspicion about the influence of high-net-worth donors and government. And advocacy? The struggle continues to help nonprofit leaders understand that advocacy is legal and necessary in most fields of service. Each section of the report ends with “Take Action” to change the issues of concern mentioned through federal policy change. Let’s hope the report inspires more people to demand good data, better workforce policy, and more.