Is Earned Revenue Right for Your Nonprofit?
This blog post was written by Belinda Li, the Founder, CEO and Chief Consultant of CiTTA Partnership — a different kind of consulting firm, where social impact meets business strategy. Email: belinda@cittapartnership.com
Boston, 1902: Reverend Edgar J. Helms collected unwanted household goods and clothing from across the city, employing impoverished immigrants to repair those items for resale and paying the workers through the sales revenue. Known today as Goodwill Industries International, that thrift store has grown to a $7.6 billion social enterprise nonprofit that helps individuals with barriers to opportunity find jobs and get the wrap-around supportive services they need. This serves as an example of how successful and sustainable an earned revenue model can be for supporting a social mission.
Earned revenue’s promise of providing a new funding stream to support nonprofits that are traditionally dependent on grant funding or donations can be particularly enticing. Yet, as with any new endeavor, earned income comes with both benefits and risks. Here are important elements for a nonprofit to consider before it dives headfirst into this new arena.
Consider Your Competency
First, consider what your nonprofit does well and what may be too far from its competency. While unrelated business models can certainly support a mission, such as a bakery that employs homeless individuals, the expertise required to implement a new fee-based service should not stretch your organization beyond what it can realistically accomplish. Understanding your organization’s true competency will help determine that balance.
For example, an educational nonprofit client of ours certainly has the necessary competency to offer its programming as an after-school STEM enrichment service. To successfully implement this as a fee-for-service program, however, they would need to build new marketing and sales skills and hire new staff accordingly to compete against similar service providers, some of whom are for-profit companies with more resources. As you audit your existing assets, think about both what you already have that can be best leveraged to start and grow an earned revenue endeavor as well as what new skills and assets you may need to add.
When leveraged well, a market-driven opportunity built on a nonprofit’s competency can present significant advantages. Beyond earned revenue’s obvious benefit of bringing additional funds to your organization, the model can also help a nonprofit expand its champion base, introducing your mission to more people who might otherwise be unaware of it, as well as provide the organization with more flexibility to innovate.
Consider the Feasibility and Risks
Through our work with nonprofits interested in earned revenue models, we help them identify the market and the feasibility of new social enterprise ideas. One such client is a nonprofit that supports efforts in environmental stewardship practices. When they approached us about building a social enterprise that would provide solar industry jobs for returning citizens, we conducted an extensive feasibility assessment and determined that, while the financial model could work, the financial risk was significant. This study provided fact-based data and scenarios to allow them to make an informed decision on whether to pursue this idea or not.
In addition to the financial risk of an investment not returning, organizations can face other risks: a brand risk of a poorly implemented program leaving end customers with a negative impression on the nonprofit and the individuals it supports; an adaptability risk of not moving quickly enough to compete in the market-driven world; and a cultural risk in which stakeholders may resist the nonprofit’s shift towards instituting an earned revenue stream. To mitigate these risks, leadership teams should consider if they can introduce staff and other key stakeholders to the planning process early to immerse them in the why and how of the new model.
Stay Focused on Your Mission
Understanding your organization’s competency and the benefits, risks, and feasibility of a new earned revenue endeavor are all important, but ultimately, any new revenue stream should feed back to the mission that makes it all worthwhile. To keep your mission front and center, you must know both your goal and the financial and mission metrics by which you’ll measure it.
For example, another nonprofit client of ours began as a donation-funded program that designs and directly implements trauma-informed, activities-based programming to help youth develop mental resilience. However, it soon became clear that a train-the-trainer model would allow them to exponentially scale their impact as each adult educator they train would in turn impact many youth. At the same time, educational institutions are in great needs of such training services and are willing to pay for it. This is a great example of a fee-for-service earned revenue model that, rather than detract from the organization’s mission, both scales the mission and helps the nonprofit become more financially sustainable.
The same holds true for your work. Whether you exist to eradicate poverty or purify the oceans, the right funding streams for your nonprofit won’t distract from that mission. Instead, it will lift and scale your mission, allowing you to accomplish more of the life-changing work that you do every day.
Want to know more or need help assessing the feasibility of, or building a business model for, an earned revenue / social enterprise venture? Email Belinda Li at: belinda@cittapartnership.com or check out CiTTA Partnership’s website: https://cittapartnership.com/
