Earned Income: The most important source of income for nonprofit organizations
Posted On July 5, 2023
Especially in today’s economy, if you run a non-profit organization, I recommend that you diversify your sources of income. If you plan to stay solvent, you don’t want to be overly dependent on any one source of income. Having multiple streams of income will increase the likelihood that your business will be around for the long term.
A common misconception about nonprofit organizations is that they cannot and should not make a profit. This is totally false. A non-profit organization is a business and must generate profit. It’s unfortunate that most people starting nonprofits don’t fully understand how to develop a nonprofit business model that generates enough revenue to make a profit. It’s pretty simple, you create a product and sell it.
Let’s look at some real life examples to give you 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, develop 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 are serving economically disadvantaged children, but it costs money to provide this service. Too many people starting nonprofits want to offer their services for free and you simply can’t run a business without income. And without a clear understanding of this basic concept, you can’t build a successful nonprofit.
Another option for earned income is the sale of tangible products. The American Cancer Society has mastered the art of selling products. On their website you can buy jewelry, shirts, jackets, watches and a wide variety of other products. They have a crystal bead bracelet that sells for $18.99. If they sell 1,000 of these in a month, they have generated $19,000.00. Your bag product sells for $12.99. Again, selling 1,000 of these will generate $13,000.00. At the time I wrote this article, they were reporting on their website that they raised $58 million dollars through their various fundraisers and merchandise sales.
Making A Way Housing, Inc. earns the majority of its income through the rental of real property. The organization’s primary business is to provide affordable housing for the homeless and those in treatment for alcohol and substance abuse. Residents pay rent that is subsidized by grants. Rental rates are not market rates, but they are not free either. They have 70 two-bedroom units. Each unit is occupied by two residents who can pay between $100 and $350 per month. With 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 cake has several slices. For the non-profit organization, each portion represents a source of income. I propose that the largest and most important slice of any non-profit organization’s revenue pie is earned income. The wise person is the one who develops their non-profit business model with the income obtained as a cornerstone.