Diversify Your Revenue Base

As nonprofit consultants we tend to give counsel on contributed revenue – annual giving, major, capital and planned gifts. To the typical nonprofit these are vital sources of revenue. Many nonprofits are equipped to look beyond these sources to delve into the world of earned revenue. Neville Blakemore joined our team last year and created the Business Solutions division to help nonprofits explore this additional source of revenue. Neville’s background is one of service having volunteered on more than 30 Boards throughout his career. Learn more about Neville here. I asked Neville to give an introduction about earned revenue:

The buzz word in nonprofits these days is “earned revenue.” Sure, everyone is talking about it, but what does earned revenue mean and how can it benefit an organization like yours? Here are some general guidelines for ways your nonprofit could explore earned revenue opportunities.

But first, a word of caution.

Nonprofits are not-for-profit institutions. Yes, I realize this might seem obvious, but to keep your nonprofit tax status, you must follow specific rules while generating earned revenue. Any sales not tied to the mission could fall into the unrelated income category, and, if you do not get clearance from your accountant, this revenue could jeopardize your 501(c)3 status.

The above caveat having been issued, here are three broad brush approaches for generating earned income.

  • Offering Products and/or Paraphernalia – Some people, and I tend to agree, think one of the simplest business models is selling merchandised products. A few examples of branded items include t-shirts, mugs, and other paraphernalia (with your logo) that people would purchase. To manage your expectations, this will not become a mainline source for sales, yet it could, if done properly, add additional revenue.
  • Turn Training Programs into Consulting Services – An efficient and effective way to generate nonprofit revenue is expanding training services your nonprofit might be offering. Why? Because it is easier to re-package your knowledge rather than create something from scratch. A great example locally is Leadership Louisville, which leveraged its decades of teaching civic classes and now offers the Green Room, which teaches leadership skills to a new audience.
  • Selling Services to Third Parties – Does your nonprofit have a distinctive approach to completing an important task? Maybe you have a shortcut that is more efficient and saves time and money? If so, it might be possible to sell this service to third parties.It is no easy task to start selling services (otherwise more nonprofits would do it), yet if done properly, this third approach can be lucrative.

Certainly, the ideas mentioned above are easier said than done. Yet, if you want to pursue earned revenue, you have to think anew. Here are a few questions to start the process:

  • Where does your organization excel?
  • What are the assets – processes, intellectual property, curriculum, systems, unique content, physical space – of your organization?
  • What barriers are your customers, members and/or clients dealing with on an ongoing basis?

Once you start wrestling with these questions, you can begin thinking differently about ways of pursuing earned revenue opportunities for your organization.

Exploring earned revenue options is definitely something to consider but note that it will not be a quick-win. As Neville noted, contact your accountant and by all means involve your Board!

As always, feel free to reach out if you have any questions – Ashley|Rountree is here to help. And don’t forget to consult our Facebook, LinkedIn and Twitter accounts for continued thoughts and ideas on the latest trends in the nonprofit sector.