Cross-posted from the Center for Global Development.
When a nonprofit wins a major government contract or foundation grant, it’s cause for celebration. These wins reflect hard work and organizational strength. Yet beneath the success lies a subtle, often unasked question:
How much new good did we actually create by getting this funding—and how much simply shifted from one capable organization to another?
This question emerges through counterfactual thinking: asking not only what the organization achieved, but what would have happened to beneficiaries otherwise.
In the corporate world, if Pepsi wins away a Coca-Cola drinker, it's a success for Pepsi. The total number of cola drinkers hasn't changed, but Pepsi's bottom line has, and that's what matters to its shareholders.
But the goal of nonprofits is to add to the social good. Their success should be measured by their net impact—how much better off the world is—and not just by their own growth. When funding simply shifts between equally capable organizations, the net benefit to society is negligible.
As Benjamin Todd of 80,000 Hours put it, "What matters is that more good gets done, not that you do it yourself." While the effective altruism community has applied this principle to donation decisions and careers for years, its implications for nonprofit strategy have received less attention.
Counterfactual thinking offers a new way to conceive nonprofit fundraising success. For instance, it reframes how we should view competition. It doesn't say competition is bad; rather, healthy competition pushes nonprofits to be more cost-effective and innovative. The key insight is that when several organizations are working toward a similar goal, progress happens when they collectively have more funding, not when one gains market share from another.
Two fundraising scenarios
Consider two scenarios:
Scenario 1: Government contract won in competitive bidding. A nonprofit beats three other qualified organizations for a $2 million contract from a government agency.
Scenario 2: Major donor redirects luxury spending. The nonprofit convinces a wealthy individual to donate $1 million that would have otherwise been spent on personal consumption, like a bigger yacht.
At first glance, the $2 million government contract seems like the bigger success since it brings in twice as much money. But once we consider, "What would have happened otherwise?", the $1 million donation emerges as the scenario likely to create more additional good for the world.
In scenario 1, if another qualified nonprofit had won the contract and achieved similar outcomes, the net gain for beneficiaries might be marginal. By contrast, the donation in scenario 2 adds $1 million in new resources to the cause.
The calculation for scenario 1 changes, of course, if the winning nonprofit is more effective than its peers. When an excellent organization receives funding over mediocre alternative organizations, that creates real value for the cause. Still, to reverse the conclusion that the $1 million donation beats the $2 million grant, the nonprofit would need to be at least twice as effective as its next-best peer. That’s possible, but it’s a high bar to clear.
Why counterfactual thinking in nonprofit fundraising is rare
Despite its value, applying counterfactual thinking to nonprofit fundraising faces several real-world barriers.
It's unfamiliar. While embraced by economists and effective altruists, this lens isn't widely taught in nonprofit circles.
It can feel disheartening. We take pride in doing good directly, through our own effort. The idea that the outcome would have been nearly identical without us can feel like a dismissal of our contribution. But that feeling, while understandable, overlooks a deeper truth: with so many urgent needs in the world, directing our effort where it creates the most net good honors our intent to help.
It's abstract. We can't "see" the counterfactual. Knowing our efforts created a lot of net impact should be profoundly satisfying, but it rarely delivers the visceral thrill that a visible win like landing a major grant does.
It's hard to measure. Nonprofits need internal metrics to motivate staff and measure success. Total revenue is an easy metric to understand: it is straightforward to calculate and objective. Counterfactual impact is fundamentally difficult to measure: an estimate of what would have happened in a world we can't see. A nonprofit is unlikely to get the estimate exactly right—and could even deliberately manipulate it to mislead external stakeholders.
Among these barriers, the measurement one is different: it’s not about how we think, but about how we know. No amount of persuasion will overcome it. Thus, I don’t advocate abandoning current metrics like total revenue, but rather, complementing them. Incorporating even imperfect estimates of net impact can help nonprofits direct their fundraising where it maximizes mission advancement.
Moreover, as government funding grows scarcer, nonprofits that compete only for existing resources will see their impact dwindle. Growing the pie for the cause—where counterfactual thinking leads you—goes from being a principled choice to a strategic imperative.
What this means for strategy
A nonprofit can apply this way of thinking by first assessing its funding sources and then building toward a redefined vision of impact.
1. Categorize revenue by its additionality
A first step is to create a simple, internal classification of revenue sources based on additionality, meaning the degree to which the money represents new resources for the cause.
- High additionality: New donors, corporate partnerships that unlock new charitable budgets.
- Lower additionality: Competitive grants with several qualified nonprofits vying for them; donors switching from funding a similar organization.
The purpose isn’t to label wins as "good" or "bad," but to be clear-eyed about where revenue actually comes from.
2. Put more emphasis on high-additionality fundraising
An organization could consciously steer more resources (a star fundraiser's time, the CEO's attention) toward high-additionality opportunities. While "lower-additionality" competitive grants remain essential—they often provide overhead funding that supports organizational capacity and ensures long-term viability—this lens encourages the organization to also focus energy on growing the overall pie for the cause.
Of course, such decisions should factor in fundraising costs, as competitive awards typically require less CEO and staff time than cultivating new donors. Yet the benefits of expanding total dollars for the cause will often outweigh the added investment.
3. Double down on comparative advantages
Counterfactual thinking makes having a unique value proposition non-negotiable. An honest assessment of where the organization is genuinely best-in-class, versus merely competent, should guide fundraising efforts. Competitive bids to focus on are those where the organization is convinced (ideally by hard evidence) that its win, rather than a peer’s, will ensure the highest per-dollar return for beneficiaries.
4. Set goals for expanding total resources for the cause
A fuller picture of success comes from tracking the total resources the organization helps mobilize for the cause, as a complement to revenue. This will recognize important achievements that traditional fundraising metrics miss, such as convincing a new donor to support the field or leading advocacy that unlocks a government funding stream—even when some, or all, of those resources go to another organization. Setting explicit goals for growing the pie helps orient the organization around impact, not revenue alone, as the definition of success.
Rethinking what success means
To be clear: the goal isn't to stop pursuing competitive grants. It's to think more clearly about where a nonprofit’s fundraising efforts create the most additional value for the communities it aims to help.
We'll never have perfect metrics, but a better question is within reach. Instead of asking, "How much did we raise?", nonprofits should ask, "How much more good entered the world because we raised these funds?"
Ultimately, this shift in perspective invites a broader ambition, one that extends beyond any single organization to the sector as a whole. Its promise is a field that prioritizes impact above all, where deeper collaboration grows from a commitment to doing the most good possible.
