Just like how corporations are now looking to create “shared value” and contribute to society while making money, nonprofits are beginning to more seriously consider adding a section titled “Earned Income” to their strategic plans. Nonprofits tend to focus on strategies to find donations and grants, but ignore earned funds, which are vital to the organization’s financial health and sustainability. In fact, earned income is the largest source of revenue for the entire nonprofit sector. “According to the Center on Nonprofits and Philanthropy, private-sourced fees for goods and services made up more than 45 percent of total nonprofit sector revenue in 2010.” 1 Although, the main purpose of nonprofits is to fill a societal need, it is important to start thinking like a business in order to keep financially stable (especially, since donations have been on the decline). How does an organization fit earned-income into their strategy?
First step to developing an earned-income plan is to assess the organization’s current financial state. How much (if any) earned income does the organization currently bring in? What is the Private-sourced Earned Income index (PEI)? (This is the ratio of the total earned-income to the total cash revenue.) Then compare this to other organizations. Determine the costs and benefits to increasing earned income. Are there any risks? One common risk is losing the tax-exempt status. Make sure the earned-income goes hand-in-hand with the mission. Last step is to develop a plan.1
There are a variety of resources nonprofits can use to help them develop an earned income plan. The Society for Nonprofit Organizations’ Fundraising Guide to Earned Income at www.snpo.org/funding/earnedincome.php gives advise to determine if your organization is ready to take on earned-income ventures such as “What programs, products, and services does your organization already have in place that you could adapt for the marketplace?” and then provides tips to develop a business plan. The Stanford Graduate School of Business website at http://alumni.gsb.stanford.edu/act/alumni/best-practices/earnedincome.html provides case study examples of nonprofits increasing their earned income and their planning processes as well as a “FAQ” section and “Recommended Reading” on the subject. And if you want to really be an earned-income expert, take the full-day course “Building a Sustainable Nonprofit Organization” at The Foundation Center. Register to be a Foundation Center member at grantspace.org and go to http://grantspace.org/Classroom/Training-Courses/Building-a-Sustainable-Nonprofit-Organization to find upcoming dates and locations. The course is meant for small to medium established nonprofits that wish to find new revenue streams that are dependable and sustainable.2
Nonprofits have been hit hard by the recent recession and are looking for ways to become more financially independent in order to better ride the waves of the economic marketplace. There are plenty of resources available to nonprofits to help them create a business plan and most nonprofits have some earned-income resource that they are able to expand. In summary, nonprofits may always depend on the kindness of strangers for a portion of their income, but organizations must also be wary of the dependency of donations and search for more independent financial resources.
1.) Tait, Richard. "Stanford Social Innovation Review : Informing and Inspiring Leaders of Social Change." The Importance of Earned Income in Your Funding Model. N.p., 7 Nov. 2011. Web. 29 Apr. 2013. <www.ssireview.org/blog/entry/the_importance_of_earned_income_in_your_funding_model>.
2.) "Earned Income." Earned Income. N.p., n.d. Web. 29 Apr. 2013. <http://www.grantspace.org/Tools/Knowledge-Base/Nonprofit-Management/Sustainability/Earned-income>.