By Mark Hickman
Looking at the current state of nonprofits in Canada, financial pressures appear to have eased somewhat in the last 12 months. Overall, nonprofits in Canada have experienced an increase in revenue over the past 12 months and are on track to meet their revenue goals for the year.
However, many are now facing a new set of challenges. Despite the optimistic outlook, nonprofits are looking for new ways to engage with Canadians and corporate donors, given that organizations saw their biggest decrease in funding from corporate giving (25 percent), followed closely by individual giving, at 23 percent, in the past 12 months.
Nonprofits agree that technological advancement is seen as a strategic necessity, but a large majority do not have the people to make it a priority. In fact, almost one in five organizations (19 percent) do not have an online donation option; this is increasingly problematic, as donors are supporting charities infrequently, and 83 percent of donors think digital processes and communications can make it easier for donors and volunteers to give back.
With the rise in demand for services, coupled with the widening giving gap, nonprofits are under increased pressure to operate more efficiently while delivering greater value to the communities they serve. As a result, nonprofits are prioritizing improving their internal systems to uncover efficiencies, while looking for new ways to better engage with current and prospective donors and volunteers.
Thankfully, governments are listening and have increased funding to support nonprofits’ general operations, as well as their digitalization/automation efforts. It is time for corporate Canada to step up and do the same, by increasing their support for nonprofits that provide the essential services that help our communities to grow together.
The second part of the annual Grow Together Report surveyed 120 decision makers in nonprofits in April 2023 to understand the current state of nonprofit organizations in Canada. The survey reveals that financial pressures for nonprofits have eased somewhat in the last 12 months, although organizations continue to struggle with rising costs and with securing skilled talent to help drive strategic initiatives, including digital transformation.
Key findings
Nonprofits are cautiously optimistic on seeing signs of a positive financial outlook. 42 percent of nonprofits indicate their organization has experienced an increase in revenue in the past 12 months.
The majority of organizations (61 percent) are on track to meet their revenue goals for 2023. However, one in five nonprofits (20 percent) is behind in meeting its revenue goals for 2023
The largest increase in funding came from governments, with 28 percent of organizations experiencing an increase in the past 12 months. Conversely, organizations saw the biggest decrease in funding from corporate giving (25 percent), followed closely by individual giving (23 percent).
Despite the optimistic outlook, nonprofits are feeling increased financial pressures as a result of the economic uncertainty. More than half of respondents (53 percent) indicate that the cost of programs has increased over the past 12 months.
To continue driving success in 2023, nonprofits are prioritizing efficiency and demonstrating value. Nonprofits are prioritizing improving their internal systems, as well as increasing their brand awareness and expanding their program offerings to better engage with and demonstrate value to current and prospective donors and volunteers.
Digital transformation is becoming a necessity for success. Only 18 percent of nonprofits are fully digital first, while 48 percent are in the process of digitizing key aspects of their organization.
The battle for skilled talent is heating up. Nearly half of the respondents (48 percent) are experiencing staffing shortages currently, while more than three quarters of respondents (79 percent) see staffing shortages as a major barrier that will persist throughout the rest of 2023.
Nonprofits are expected to do more with less. Decreases in funding (36 percent) and increased demand for services (30 percent) are also notable factors putting external strain on organizations.
The current state of nonprofits
The first part of our annual Grow Together report found that new economic challenges, including inflation, a dramatic rise in the cost of living, and other pressures, were forcing Canadian donors and volunteers to re-evaluate how they were supporting charities. With more and more Canadians turning to nonprofits for help, organizations are under pressure to meet increased demand, while looking for new ways to drive efficiencies to help close the widening giving gap.
Cautious optimism
The past twelve months have been tumultuous for Canadians and nonprofits with economic tailwinds affecting all. However, despite the growing challenges, nonprofits are cautiously optimistic and are seeing signs of a positive financial outlook.
The report found that 42 percent of nonprofits experienced an increase in revenue over the past 12 months – while 34 percent saw revenue remain flat year-to-year. Conversely, nearly one in five (18 percent) experienced a decrease in revenue.
Provincially, the organizations in Atlantic Canada (57 percent) and Alberta (50 percent) have experienced the most increase in revenue in the past 12 months, while nonprofits in Saskatchewan and Manitoba (30 percent) have experienced the least.
Of the organizations that have experienced an increase in revenue over the past 12 months, the majority (60 percent) have seen an increase of less than 25 percent growth, with almost a quarter (24 percent) achieving between 25 percent and 50 percent growth. Only one in ten organizations (10 percent) saw significant growth between 51 percent and 75 percent.
A positive outlook
The majority of nonprofits are optimistic about their performance over the past year, and many are hopeful the positive outlook will continue for the rest of the year. The report found that almost half (43 percent) of nonprofit decision makers are optimistic about their revenue forecast for the remainder of 2023, with the majority of organizations (61 percent) on track to meet their revenue goals for 2023.
Despite this continued optimism, there is still a sizeable portion of nonprofits across Canada lagging behind in their revenue projections. The report found that one in five nonprofits (20 percent) is behind in meeting its revenue goals for 2023.
Widening of the giving gap
Canadian nonprofits have been largely positive over the past 12 months, but many have begun feeling the effects of the shifts in charitable giving. Only a third of organizations (34 percent) indicated that funding has stayed the same for the past 12 months. Nonprofit organizations saw the biggest decrease in funding from corporate giving (25 percent), followed closely by individual giving (23 percent). This decrease aligns with the findings from the first part of the 2023 Grow Together report, which found that more than a third of donors (38 percent) will stop or reduce their charitable donations, while 26 percent of volunteers will either stop or reduce their volunteer hours in the next 12 months.
The first part of the report found the majority of Canadians are expecting both businesses (63 percent) and governments (57 percent) to do more to support charities. While we’re continuing to see a downward trend in corporate giving, it appears the government has responded. The report found that the largest increase in funding over the last 12 months came from governments, with 28 percent of organizations experiencing an increase. Respondents noted that the increase in government funding aims to support general operations and/or their digitalization and automation efforts.
Research found 61 percent of organizations are on track to meet their revenue goals for 2023, while 20 percent of nonprofits are behind in meeting their revenue goals. The biggest decreases in funding is in corporate giving at 25 percent down, while individual giving is down 23 percent.
New challenges ahead
In addition to the widening of the giving gap, nonprofits are also facing new economic challenges, including inflation and a rise in operational costs, as well as significant increase in demand for their services.
The report found that more than half of respondents (53 percent) indicate that the cost of programs has increased over the past 12 months. At the same time, 39 percent of respondents say that more and more Canadians are turning to their services, resulting in more than a third (38 percent) of organizations increasing the number of programs to keep up with the demand.
To continue driving success for the remainder of 2023, nonprofits are prioritizing increasing their brand awareness and expanding their program offerings to better engage with and demonstrate value to current and prospective donors and volunteers, as well as improving their internal systems.
Top three priorities for 2023:
- Expand existing programs at 48 percent
- Improve internal systems 42 percent
- Increase brand awareness 38 percent
Driving engagement
As we discovered in the first part of the report, individual donors are more willing to support a charity they have a personal connection with, whether it benefits their community or if they know someone that has personally benefited from the nonprofit.
Likewise, nonprofits found that they are able to elicit higher engagement with individual, corporate, and government donors who are aligned with the values of organization.
The report found that the top reason for individuals, corporate, and government donors to donate was “a clear alignment with personal values,” followed closely by “measurable impact of donor dollars” and “opportunities to personally interact with beneficiaries that they support financially.”
Provincially, organizations having a clear alignment with their personal values was the top reason for individual donors in Alberta (75 percent) and Atlantic Canada (71 percent), followed by a measurable impact of donor dollars in British Columbia (B.C.) (71 percent).
Corporate and government donors in B.C. (71 percent) and Saskatchewan and Manitoba (70 percent) ranked a clear alignment with their personal values highest, followed in Saskatchewan and Manitoba (70 percent) by opportunities to showcase the results of their financial support.
Evolving donor and volunteer engagement
As the first part of the report showed, donor and volunteer expectations on how, when, and where they like to be engaged have shifted considerably over the past 12 months. In response, nonprofit organizations have had to evolve key processes for how they engage and demonstrate impact to better meet today’s donors’ expectations.
The report found that almost half (43 percent) of nonprofits include outcome and performance metrics, as well as “calls for support” when sharing their mission achievement. To better engage donors, nonprofits are also prioritizing images (35 percent) and video (30 percent) content that demonstrate impact. This is becoming increasingly crucial with the rise of social and streaming platforms and with donors and volunteers becoming more strategic about the organizations and causes they support.
Offering an online donation option is also increasingly vital to nonprofits’ financial stability: a quarter of respondents (24 percent) say online donation contributions represent 51 percent–75 percent of total funding from individuals, while another 24 percent of organizations say online donations represent 25 percent–50 percent of total funding.
While a large percentage of funding for organizations is coming through digital means, a surprisingly large amount – almost one in five organizations (19 percent) – do not currently have an online donation option. The importance of online donation is indicative of how critical digital transformation has become to the future of nonprofits.
Digital transformation is becoming a necessity for success
The first part of this report found that Canadians are more likely to donate if they know the charity is operating efficiently, and that 73 percent believe charities that are taking advantage of available technologies are operating more efficiently. Additionally, two-thirds of donors (66 percent) support the use of automation technologies to reduce overhead costs.
The pandemic forced organizations in Canada and around the world to accelerate their digital transformation strategies. Among nonprofits, technology and digital transformation were once viewed as a major expense, difficult to justify to stakeholders. Today, however, digital transformation is not only seen as an enabler of greater efficiency but has become a necessity for nonprofits to succeed.
“The use of digital technologies in the nonprofit sector is no longer optional,” says Chantal Edwards, Manager, Public Policy, Imagine Canada. “To succeed in this tech driven world, nonprofits need a digital footprint to build awareness of their brand and program offerings. As governments and funders continue to focus on efficient program delivery, the adoption of digital technologies will allow nonprofits to automate processes, resulting in reduced program costs. Investments in digital technologies will be essential to ensure nonprofits can continue to deliver high-quality programs and services to communities in need.”
Overcoming barriers to drive change
In addition to the current economic volatility, many nonprofits are stymied by a host of challenges that are impeding their digital transformation journeys. The biggest internal barrier to moving forward with digital transformation strategies is a lack of staff with the right skillset to manage the digital transformation journey, followed by inability to measure outcomes (20 percent) and time-consuming manual reporting (18 percent).
Accelerating the digital transformation journey
While organizations see technology as a vital driver for success, many face external and internal barriers in managing their digital transformation strategies. The report found that only 18 percent of nonprofits are fully digital first. Provincially, Quebec nonprofits are outpacing their provincial peers by far, as 40 percent say they are fully digital. Nearly half (48 percent) of nonprofits are in the process of digitizing key aspects of their organization, while 20 percent have not yet begun their digital transformation journeys. B.C.-based nonprofits are trailing other provinces, as more than a quarter (29 percent) have not begun digitizing key processes.
Due to staffing shortages of skilled workers and budget constraints, many nonprofits have taken a staggered approach, prioritizing systems that can deliver the greatest ROI. Over half (55 percent) have completely digitized their financial processes, followed by people management (37 percent), marketing activities (34 percent), and donor and volunteer communications (27 percent).
To support improving their internal systems, nonprofits are prioritizing key features to drive automation and the digitization of key processes. More than a quarter (28 percent) of respondents are planning to dedicate 20 percent or more of their operation budget for this purpose. In addition, 18 percent of nonprofits are fully digital-first, 48 percent say they are on a process of digitizing, and 20 percent have not yet begun their digital transformation journeys.
The battle for skilled talent heats up
Nonprofits agree that technological advancement is seen as a strategic necessity, but a large percentage do not have the people to make it a priority. The report found that nearly half (48 percent) are currently experiencing staffing shortages, while more than three-quarters of respondents (79 percent) see staffing shortages as a major barrier that will persist throughout the rest of 2023.
Provincially, nonprofits in Quebec and Atlantic Canada are being affected the most acutely, with 60 percent (Quebec) and 57 percent (Atlantic Canada) ranking staff shortages as their biggest challenges.
Nonprofits are struggling to identify and retain skilled workers critical to driving digital transformation strategies. The report found that organizations lack staff with critical skillsets to manage digital transformation (35 percent), have financial systems and processes that are unable to keep pace (18 percent), and suffer a lack of process automation, leading to organizational inefficiencies (17 percent).
To expedite their digital transformation journeys, nonprofits are turning to technology to support their efforts; half (50 percent) are working with technology companies to integrate and upgrade their systems.
Digital transformation is a journey
While the past 12 months have been positive for many nonprofits, they recognize that the current challenges are accelerating, and that they cannot rest on their laurels. Nonprofits must adapt to uncover new efficiencies to make a greater impact in the communities they serve. As modern stewards, they need to see technology not only as an enabler but a necessity to achieving their mission.
Each digital transformation journey is unique and has barriers to navigate. Sage is committed to working hand in hand with nonprofit partners to knock down the barriers, bringing insights, expertise, and technologies, and our passion, to navigate today’s economic uncertainty and deliver continued value to the communities in which they operate. When nonprofits succeed, our communities thrive.
Mark Hickman is Managing Director, Sage in Canada.
Research methodology: An online survey of 120 business decision makers at nonprofits was completed between April 17 and April 25, 2023, using Leger’s online panel. Leger is the largest Canadian-owned market research and analytics company, with more than 600 employees in eight Canadian and US offices.
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