Philanthropy Isn’t Broken—but How We Fund Might Be

Foundations face one of the most urgent moments in their history. Federal budget cuts, deepening inequality, climate change, and the disruption of AI — the challenges seem to mount by the day and demand ambitious responses.

One answer to these turbulent times is to give more money, and many funders are indeed increasing their annual grant-making budgets. But no amount of giving can close a gap this wide. We need to look beyond the dollars awarded, important as that is, and focus on how we fund, not just what we fund.

An especially promising approach rethinks how foundations typically award grants. The idea is simple: give nonprofits unrestricted funding, freeing them to find the most creative and effective solutions. Then reward what works.

Like traditional grants earmarked to fund programs, this approach — referred to as outcomes-based funding — sets clear goals and expectations. But like unrestricted giving, it gives nonprofits the flexibility to adapt, experiment, and respond to real-world conditions as they change. Outcomes-based funding offers the accountability boards need alongside the trust grantees deserve.

Our team at Social Finance, a national nonprofit that that brings government, philanthropy, and business leaders together to put capital to work in new ways, wanted to put an outcomes-based approach into practice and show how it works on the ground. We partnered with a family foundation in New Jersey on a persistent problem: Each year, an estimated $11 billion in earned income tax credits meant for low-income workers goes unclaimed — money that could help families pay for rent, child care, or groceries. Hundreds of thousands of eligible families miss out, often because they don’t know they qualify or how to claim the credit.

The foundation, which requested anonymity, could have funded traditional outreach, like awareness campaigns or tax workshops, as many other grant makers have. Instead, its leaders were open to trying something different. Working together, in collaboration with local partners, we set clear, ambitious goals for increasing the number of people who seek the tax credits. We then provided upfront funding and agreed that additional payments would be tied to real outcomes, like helping more eligible people successfully file and claim the credit.

The result? During arguably the most difficult tax season in recent memory, the foundation’s grantees saw a $1.4 million increase in credits claimed over the previous tax season — and served more filers than before, substantially outpacing the nationwide filing growth.

An outcomes-based approach made all the difference.

Practical vs. Flashy 

Instead of competing for funding based on flashy ideas, grantees had the flexibility to choose the simplest, most cost-effective strategies that still delivered results. Some organizations used funds to pay for Uber rides after realizing that lack of transportation, not lack of interest, was preventing people from getting to tax preparation sites. Others focused on better serving Spanish- and Portuguese-speaking residents by finding bilingual community members and paying for their tax preparation certification. That freedom allowed grantees to use funding more efficiently and even left money unspent, something we didn’t anticipate at the start, enabling the work to continue into a second year and expand the strategies that worked best.

This experiment did something grant making rarely does: it rewarded the simplest, most cost-effective solutions that work.

The flexibility created also extended to the contracts themselves. Because contracts focused on outcomes rather than line-item spending, grantees could reallocate funds quickly as circumstances changed—no new approvals, no added paperwork. The result was real-time responsiveness rarely seen in traditional grant making.

This approach also accelerates learning, especially when multiple grantees are pursuing the same outcomes through different strategies. To support this, we invited grantees to gather for discussions where they could compare notes, share what was working, and adopt their peers’ most successful tactics. That meant both the foundation and its grantees could understand, in real time, what works, where, and why.

What we saw was not just better outcomes but the conditions for lasting change. 

On the ground, paying for outcomes changed how grantees operated. Many pursued ideas they wanted to try for years, creating proof points both for us and for their own leadership. These results opened doors to new partnerships and more sustainable sources of funding.

Perhaps most important, it transformed the typical grantee-funder relationship. While this approach required more upfront clarity and engagement — to set and align on clear goals and payments — it fostered deeper trust and more honest communication among all parties, encouraging the creativity, flexibility, and learning that traditional grant making wants but rarely achieves.

So why isn’t outcomes-based funding used more widely in philanthropy? It’s often misconstrued as operationally complex, which it doesn’t have to be, and viewed as riskier than traditional approaches, which it isn’t.

Many grant makers believe that shifting the focus to outcomes means giving up control. What if the outcomes don’t pan out? How will funders and boards react? It’s true, there’s always a chance this will happen. But the same is true in traditional grant making. What’s different here is that funders either maximize their impact or gain clear insight into what isn’t working, allowing them to learn faster and more accurately. With any unspent funds, they can then adjust course and try again.

We need to learn from this effort in New Jersey, especially in this moment when foundations are being asked to do more. These principles — setting measurable goals, providing flexible resources, and paying for results — can apply across issues to create meaningful change.

The question isn’t whether this approach works. It’s whether funders are willing to rethink not just what they support — but how.