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Survey: Challenging NFP revenue means cuts loom as demand surges

Written on Mar 1, 2024

More than 7 out of 10 nonprofit leaders reported increased demand for services last year. Yet, nearly as many said they’re considering program cuts due to increased overhead and operational costs coupled with workforce shortages that have many struggling to fill key positions throughout their organizations including senior leadership posts. 

The news from a recent survey wasn’t all bad as more than half (56%) of nonprofits saw net income increase during 2023 as compared with the nearly half (48%) that saw income fall during the previous year of 2022. Still, a continuing sector-wide decline in giving by individuals is worrisome and could exacerbate the need for cuts if labor shortages persist and if other sources of income are insufficient to make up the lost contributions. 

The growing strategic use of technology to improve efficiency and service delivery could lessen some of this impact but won’t be enough to prevent it, according to the author of the just-released 2024 State of the Nonprofit Sector report. “While organizations will increasingly lean on technology to lessen workforce demands, the importance of human interactions will persist,” said Dan Prater, senior managing consultant with accounting and professional services firm FORVIS in New York City, who oversaw the study. 

The 46-page report is the latest in a continuing series of annual sector studies that FORVIS and its predecessor firm BKD began commissioning in 2020. More specifically, as detailed in the report: 

  • A total 71% of respondents reported that demand for services went up somewhat (46%) or significantly (25%) last year. 

  • More than one-third (34%) of respondents are now seeing waitlists and service delays of a month or longer due to demand with some (4%) reporting service delays longer than two months and even more (18%) reporting service delays of three months or more. 

  • More than two-thirds (68%) of respondents now anticipate having to reduce or eliminate some programs without adding any new ones during the next one to two years. Of them, 12% say they’re somewhat likely to do so and more than half (56%) say they’re very likely to do so. 

The reported drop-off in giving by individuals, which mirrored the recent Giving USA report, was no less alarming and reached an all-time low of 64% of total giving. It was only the fourth time in 40 years that year-over-year donations did not increase. The decline impacted 43% of human service organizations and more than half (55%) of religion-related nonprofits, which the researchers suggested might be symptomatic of the significant decline in religious service attendance as reported in a recent Pew Research Center study. 

The decrease in individual contributions was offset for many by rising investment income, which rebounded last year to constitute the second highest source of revenue after program and service fees, which is a combined category. But in a tight labor market, a falloff in investment income or any other revenue pillars could compound the staffing challenges faced by the nearly three-quarters (74%) of nonprofits whose leaders cited an inability to offer competitive salaries and benefits as being somewhat (39%) or very (35%) likely to blame for difficulty filling job vacancies. 

Still, 85% of respondents said the biggest barrier to successful recruitment is that there simply aren’t enough available employees to fill positions even after the many positions that were filled following the pandemic. The struggle to recruit and retain talent even extends to the C-suite, where 80% report difficulty filling senior positions especially in finance, accounting, and fundraising. 

To address this leadership deficit, funders must enable organizations to invest more in staff development, according to Prater. But current leaders must also be increasingly resourceful at finding untapped talent from among those who have immersed themselves in supporting their organizations’ missions and even from those who have used their services, both of which Prater suggested could offer fertile ground for finding and raising the next generation of leaders. 

A total 325 nonprofit leaders participated in this survey, which was conducted during late 2023. The overwhelming majority (94%) were from 501(c)(3) nonprofits with human services (30%), education (20%) and health (17%) representing the top three categories. Of them, 18% were from small nonprofits (revenue less than $1 million), 47% from mid-level nonprofits (revenue of $1 million to $25 million), and 35% from large nonprofits (revenue greater than $25 million). 

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