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, that thrift store has grown to a $6 billion social enterprise and serves as an example of how successful and sustainable an earned revenue model can be for supporting a social mission.
Following a year that pummelled the social sector, earned revenue sounds particularly enticing for nonprofit organisations. After all, it has the potential to help nonprofits that are traditionally dependent on grant funding or donations support their mission through a new funding stream. If you’re considering market-driven funding, you’re not alone: 49 per cent of nonprofits pursued private earned revenue streams in 2019, according to the National Council on Nonprofits. Yet, as with any new endeavour, earned income comes with both benefits and risks. Here are important elements to consider before you dive 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 organisation beyond what it can realistically accomplish. Understanding your organisation’s true competency will help determine that balance.
For example, a science museum most likely has the necessary educational competency to offer its programming as an after-school STEM enrichment service. To successfully implement this as a fee-for-service program, however, the museum may need to build new marketing and sales skills and hire more educational staff. As you audit your existing assets, think about both what you can best leverage to start and grow an earned revenue endeavour and 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 organisation, 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 organisation 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, Faith in Place, helps faith-based institutions lead and implement environmental stewardship practices. When Faith in Place approached us about building a social enterprise that would provide solar industry jobs for returning citizens and foster care alumni, 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 Faith in Place to make an informed decision on whether to pursue this idea or not.
In addition to the financial risk of an investment not returning, organisations can face other risks: a brand risk of a poorly implemented program leaving 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 organisation’s competency and the benefits, risks, and feasibility of a new earned revenue endeavour are all important, but ultimately, any new revenue stream should feedback to the mission that makes it all worthwhile. To keep your mission front and centre, 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, Stryv365, 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 organisation’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 support and scale it, allowing you to accomplish more of the life-changing work that you do every day.
Belinda Li is the Founder, CEO & Chief Consultant of CiTTA Partnership.