Financing Not Fundraising: Evaluate Earned Income

In part 8 of our ongoing blog series, Financing Not Fundraising, we are discussing earned income opportunities for nonprofits.

If you are new to this series, our Financing Not Fundraising blog series argues that fundraising in the nonprofit sector is broken.  In fact, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. The nonprofit sector needs a financing strategy, not a fundraising one.  That means that nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities.  Instead, nonprofits must work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

Earned income for nonprofits, or the sale of goods and services, is a somewhat misunderstood and unexplored financial opportunity for nonprofits. Yet there are countless examples of nonprofit organizations that sell goods or services to supplement their revenue. These include Goodwill, museum gift shops, hospitals, charter schools, theaters, and much more.

Unfortunately there are many fears in the nonprofit sector about earned income. Some of these include fear that earned income will:

• Detract from the mission of the nonprofit
• Undermine the organization by introducing “market forces”
• Be too difficult or complex to manage
• Put their nonprofit status at risk

And if mismanaged, earned income has the potential to do some or all of these things, but so does any other mismanaged activity.  Earned income is not right for every nonprofit, but every nonprofit should at the very least analyze whether earned income is a potential opportunity.

Let me be clear. Earned income is not a panacea, it cannot transform a shaky financial model into a sustainable resource engine, it cannot provide fast cash. Earned income should be explored only when your organization is relatively stable and you are planning for the long-term. Earned income ventures could take years to reach profitability.

Here are some questions to get you started in thinking about earned income. If you answer yes to a majority of these, you might consider earned income as potential new revenue source for your organization:

• Are we in a fairly stable financial situation?
• Do we have core assets that could be transformed into saleable products or services?
• Is there a potential market with a willingness and ability to pay for these products/services?
• Would the sale of these products/services be a compliment to, not a distraction from, our mission?
• Is our staff and board, for the most part, open to risk and experimentation?
• Do we have access to funders who could potentially provide some startup capital for an earned income venture?

Once a nonprofit decides to explore earned income, there is a multi-phased process to undertake which includes:

1. Analyzing assets to determine potential products/services to sell
2. Conducting market research to determine competitors and consumers
3. Pilot testing a product/service
4. Creating a business plan including marketing, staffing, financial model, risks and mitigations
5. Launching the business

One of my favorite examples of a nonprofit where earned income really works is English at Work. Their mission is to provide English language instruction at the worksite for employees of hotels, hospitals, and restaurants. But the really interesting part is that they charge the hotels, hospitals and restaurants for these classes. The full costs of English at Work are not covered by those class fees, but they are working toward a financial model where 50% of the organization’s budget is funded by that earned income source. Theirs is an example of a very successful, innovative and mission-tied earned income stream that will provide them long-term financial sustainability. That’s when earned income really works.

If you want to learn more about applying the concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series, or download the 27-page Financing Not Fundraising e-book.

Photo Credit: sergio_leenen