Why Unrestricted Revenue Matters for Nonprofits

Every nonprofit leader wants more flexibility. More breathing room. More stability. More capacity to plan ahead, grow programs, and invest in their people.

But very few have the one funding ingredient that makes all of that possible: unrestricted revenue.

In this episode of A Modern Nonprofit Podcast, Tosha sat down with Aaron Landis, Director of Business Development at The Charity CFO (and a former nonprofit fundraiser), to talk about why unrestricted support is so critical – and why so many nonprofits struggle without it.

After working with hundreds of organizations, this pattern has become impossible to ignore: The organizations that struggle the most are the ones with the least unrestricted funding.

Let’s break down why.

Why Unrestricted Revenue Is a Game Changer

Restricted grants certainly have their place. But they’re also rigid. They tell you exactly how, where, and when you can spend the dollars – even when the need on the ground looks different.

Unrestricted funds do the opposite. They create freedom.

Freedom to:

• invest in staff
• cover real operating costs
• upgrade technology
• build reserves
• absorb unexpected change
• make bold strategic moves

Aaron calls it “breathing room.” And for good reason. Without it, most nonprofits are stuck reacting instead of leading.

What makes this even harder?

Only about 20% of U.S. philanthropy is unrestricted.

That means 80% of gifts come with strings attached – and nonprofits feel that constraint every single day.

Where Nonprofits Go Wrong With Unrestricted Funding

Most organizations don’t intentionally avoid unrestricted dollars—they simply never built a strategy to pursue them.

But here’s where things typically get messy:

relying too heavily on government contracts
carving out new “shiny” programs just to apply for grants
assuming donors won’t give general support
treating unrestricted as an afterthought rather than a priority
boards pushing for program-only fundraising

The result?

A beautifully diverse restricted revenue mix – and zero flexibility to run the organization powering it all.

Restricted funding can grow your programs. Unrestricted funding keeps your organization alive.

How to Start Increasing Unrestricted Revenue

The good news? You don’t need a massive overhaul to shift your revenue mix. But you do need intentionality.

Here are the first steps Aaron recommends:

1. Reposition your annual fund

Instead of “general operating,” frame it as:
• mission enabler
• capacity fund
• impact accelerator

Language matters.

2. Build a stronger case for flexibility

Show donors and boards that unrestricted = impact.
Give examples. Use stories. Tie it directly to mission outcomes.

3. Educate your board

Boards often misunderstand the costs of restricted funding.
Help them see the administrative burden and lack of margin.

4. Encourage corporate sponsors and foundations to loosen restrictions

Some will say no.
But many will say yes – simply because no one ever asked.

5. Report back with clarity

Unrestricted doesn’t mean unaccountable.
Explain how the dollars strengthened your organization, not just a line item.

Leadership Sets the Tone

The most important insight Aaron shared?

The nonprofits that excel at unrestricted fundraising have CEOs and boards who champion it.

This isn’t a development issue. It’s a leadership issue.

If the executive team isn’t aligned around the need for flexible funding, the revenue mix will never change. But when leadership owns the message – and empowers the development team – the shift happens.

Unrestricted Revenue Fuels Sustainability

If your organization is struggling to scale, constantly in crisis mode, or unable to invest in infrastructure, chances are your unrestricted revenue is too low.

The benchmark we recommend is simple:

At least 50% of your revenue should be unrestricted.

That’s the level where flexibility becomes possible and sustainability becomes achievable.

If you want help evaluating your own revenue mix – or exploring the other 29 principles in The Charity CFO Financial Blueprint you can download the full guide below.

Get the Financial Blueprint here.