Every nonprofit is a Closed Loop organization or an Open Loop organization. Knowing the distinction between the two and which camp your organization is in will have a huge impact on your fundraising.
While donors represent anyone who volunteers their time or financially supports an organization, I want to focus on those who give financial support. And for our purposes, let’s define a “beneficiary” as the recipient of your organization or institution’s services. These are the people your organization exists to serve.
Is Your Organization Closed Loop or Open Loop? And what should you do about it?
An Open Loop organization has beneficiaries that will likely never be donors. A humanitarian organization that serves the underprivileged, or provides international relief, has a beneficiary base who will likely never have the ability to provide material financial support back to the organization who helped them. That organization’s donors will come from another place. The donation process looks like this:
A Closed Loop organization or institution serves beneficiaries that have, or will have at some point in the future, the financial means to be a donor. These include hospitals, higher education institutions, and many religious organizations like churches. The donation process looks like this:
Generally speaking, most nonprofit donor bases are predominantly made up of donors who are either distinct from the beneficiaries that organization has served (Open Loop), or they are a subset of the universe of people who have been served by the institution (Closed Loop). There are always exceptions, but generally, most of your donors have personally benefited from or been impacted by your work, or they have not.
How it Impacts Your Acquisition Strategy
Your approach to acquisition has everything to do with whether you operate in the Open Loop or Closed Loop environment.
Both have a unique benefit and a very real challenge, and require distinct approaches to acquisition. If you happen to have a number of donors that reflect both models, then your acquisition practices need to reflect both models via distinct campaign strategies.