The Challenge of Resource Allocation in the Nonprofit Sector: Determining the Right Amount of Fundraising Expenses

Abstract

ABSTRACT Nonprofit organizations (NPOs) have access to a limited amount of funding which must finance multiple activities. The challenge of allocating resources includes setting an appropriate budget for fundraising. The dynamic optimization model developed in this study enables an NPO to maximize the services that it can provide over time by calculating the optimal amounts of fundraising and service expenses for each period. It highlights the trade-off NPOs face in allocating resources to either services or fundraising. Our analysis provides practitioners with initial recommendations as to how an NPO’s resource allocation can be adjusted to suit different environmental settings. From a research perspective, the paper presents an analytic modeling approach grounded in well-founded economic theory, which addresses the challenge of resource allocation between fundraising and service expenses. We also discuss directions for future research and provide suggestions for other researchers and practitioners interested in this field.