Step 4 (continued). Earned Income
Earned income is the strategy of generating income from mission-related sales.
Many nonprofits sell merchandise (t-shirts, bumper stickers, and hats) and publications. Some are undertaking even more sophisticated business ventures, such as charging for:
- River outings and eco-tourism trips
- Advertising space in publications
- Expertise and knowledge (e.g. GIS, native landscaping, scientific research, curriculum development)
- Workshops or seminars
Although earned income strategies have been around for some time, they are still widely debated. The main question is: how do nonprofits distinguish themselves from for-profits if they start profit-making and business ventures? Some groups believe that earned income is inherently against the mission of a nonprofit, while others believe that entrepreneurial strategies will sharpen the focus of their mission and allow them to be less dependent on charitable giving and grants. To decide if earned-income strategies are appropriate for your organization, you should look at the benefits and disadvantages:
The benefits of implementing an earned income strategy include:
- Generating unrestricted funds that can be used for general operating support.
- Expanding your donor base - customers are good prospects for additional donations.
- Reducing reliance on grants.
- Promoting creative and strategic thinking.
- Creating publicity and advocacy opportunities.
- Building skills and leadership in market research, graphic design, advertising, promotions, accounting, and customer service.
However, there are potential disadvantages of this strategy and these include:
- Diverting time and energy away from programs.
- Needing start-up capital to initiate the venture.
- Losing money - your organization always runs the risk of losing money.
- Losing credibility if you contract services or sell products to organizations whose missions are counter to yours.
If you are considering specific earned income strategies, here are some questions to ask yourself before beginning any venture:
- Do you have passion about the project? Your heart has to be in the mission for you to succeed!
- Do you have a clear purpose that can be articulated in a business plan?
- Do you have the resources (time, money, staff energy) to see the project to completion? Is everyone on board with this plan?
- Does this venture fit into the organization's mission statement and priority activities?
- Can you be at the top of the market with this product? Is this product creative and is there a demand for it in your constituency?
Finally, if you decide to proceed with the earned income strategy, make sure to get good legal advice so you understand the guidelines for earning income as a nonprofit.
Citation: See Resources, Works Cited #21