12/06/2024

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Earned Revenue – The Most Important Source of Income For Nonprofits

3 min read
Earned Revenue – The Most Important Source of Income For Nonprofits

Especially in the current economy, if you manage a nonprofit, I highly encourage you to diversify your revenue sources. If you plan to stay solvent, you don’t want to over-rely on any one source of income. Having multiple streams of revenue will increase the likelihood that your business will sustain over the long term.

A common misconception about nonprofits is that they can’t and shouldn’t make a profit. This is totally untrue. A nonprofit is a business and it should make a profit. It is unfortunate that the majority of people who start nonprofits don’t fully understand how to develop a nonprofit business model that generates sufficient revenue to make a profit. It’s fairly simple, you create a product and you sell it.

Let’s look at some real life examples so you have a better idea of what I’m talking about. The Quicksilver Track Club is an elite track and field training program that works with at risk youth. Their mission is to train kids, build their athletic ability so they can get college scholarships. As you can see if you visit the website, the registration fee is $235 per year. The program is not free. Yes, they’re serving economically disadvantaged kids, but it costs money to deliver this service. Far too many people who start nonprofits want to give their services away for free and you just can’t operate a business without revenue. And without a clear understanding of this basic concept, you cannot build a successful nonprofit.

Another earned revenue option is the sale of tangible products. The American Cancer Society has mastered the art of selling products. On their website you can purchase jewelry, shirts, jackets, watches, and a myriad of other wares. They have a crystal beads bracelet that sells for $18.99. If they sell 1,000 of these in one month, they’ve generated $19,000.00. Their tote product sells for $12.99. Again, selling 1,000 of these will generate $13,000.00. At the time I wrote this article they reported on their website that they raised $58 million dollars through their various fundraisers and sale of products.

Making A Way Housing, Inc. earns the majority of its revenues through the rental of real estate. The organization’s core activity is providing affordable housing for homeless persons and those undergoing treatment for alcohol and substance abuse. The residents pay rent that is subsidized by grants. Rental fees are not market rate, but they’re not free either. They have 70 two-bedroom units. Each unit is occupied by two residents who may pay between $100-350 per month. At these occupancy rates, they can generate between $14,000 and $49,000 per month.

I like to use the illustration of the pie chart. A pie has multiple slices. For the nonprofit, each slice represents a revenue source. I propose that the most important and the largest slice of any nonprofit’s revenue pie should be earned revenue. The wise person is the one who develops their nonprofit business model with earned revenue as the cornerstone.

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