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The 5 Best Ways to Generate Earned Income for Your Nonprofit

Author: Terry Ibele
January 15, 2018
🕑 6 min read

Most organizations I’ve talked to find funding their nonprofit an uphill battle.

Between increased grant competition and fleeting, even fickle, donors, several nonprofits I know have decided to buck the status quo. With an almost entrepreneurial gusto, these organizations are developing earned income solutions to battle funding woes.

Yes, they are actually generating revenue to fuel their mission. What’s more, they are using their earned income streams to deepen their impact. This forward-thinking trend is sweeping the nonprofit realm, putting organizations in the driver seat like never before.

In this post I’m going to cover five ways they are doing this plus a shortcut on how to find a successful earned income stream for your nonprofit.

But first, a warning to nonprofits wanting to generate earned income.

One Caveat with Related and Unrelated Income

Unlike their for-profit peers, nonprofits have different regulations and rules to tiptoe around while making money. To ensure they keep their 501(c)3 status, these revenue sources should align with the organization’s mission. This means they are classified as related income. Revenue not tied directly back to the mission falls into the unrelated income category, which has IRS rules and implications for an organization.

The Balance dives more into this topic in their post, “How Much Unrelated Earned Income May a Nonprofit Receive?” Additionally, the IRS classifies unrelated income here.

Organizations implementing earned revenue streams need to connect with their accountant to ensure they don’t jeopardize their 501(c)3 status.

That being said, here are five ways to generate nonprofit earned income.

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1) License Technology or Intellectual Property

Does your organization have a secret sauce that separates it from the pack. Perhaps you have a shortcut or a process that streamlines success, or maybe you’ve even built a system or app that you could license?

This is exactly what the Denver Food Rescue did.

Their mission is to provide health equity to Denver neighborhoods and they do this by connecting gardeners with excess produce to food insecure communities throughout the city.

To help scale their activities, they created the Fresh Food Connect app, which makes it easier for their volunteers to schedule produce pickups and deliveries.

Realizing the value of the technology, Denver Food Rescue decided to license out the app to other venues. They charge a nominal licensing fee, which covers the technology maintenance costs. Essentially they’ve created a self-funding and sustainable software program.

The current model is focused on offering it to other Fresh Food Connect hubs, plus it has the potential to be white-labeled and licensed to other nonprofits working to move supplies between neighborhoods or groups organizing and transporting relief to natural disasters.
So, if your nonprofit has a form of tech or intellectual property, consider opportunities to license it out to other cities, states, or nonprofits.

Best Free Nonprofit Software

2) Consult or Facilitate Trainings

Leveraging your consulting or training services is one of the least time and cost-prohibitive ways to generate nonprofit earned income.

That’s because it’s easier to simply package your know-how rather than to create something from scratch (like an app, or a new service).

One amazing nonprofit I know that’s done this is Seaside Sustainability. At the core of their missions and vision, Seaside Sustainability’s environmental and STEM programs encourage members of the community to build and nurture a relationship with local land and seascapes.

Seaside Sustainability consults with schools, providing professional assistance to support school-wide environmental behavioral changes, teaching the best practices of greening their institutional behaviors, helping to manage and develop projects, and evaluating their campus level of sustainability. So far they’ve worked with over 150 schools around the country helping many receive coveted recognition and national awards.

3) Sell Products or Offer Services

Perhaps the simplest approach comes in the form of selling products or offering services. After all, it’s practically the first form of business created.

Bikes Together, an organization addressing community wellness and education by increasing access to bicycles, does both. To supplement their programs that give away bikes, they sell refurbished bikes to the public. Once people own bikes, they need to be maintained. That means tune-ups, which Bikes Together offers as well.

Additionally, they have a fully equipped workshop where people can come in and learn how to fix their bike and purchase bike parts, both new and used. The workshop is free to use on Tuesdays, Wednesdays, and Saturdays. But on Thursdays and Sundays, only paying members may access the shop. This created even more revenue for the organization as many people became paying members to access the exclusive hours.

4) Rent Out Space

In today’s hot real estate market, physical space is a commodity. In fact, in order to help make rent each month, one of the organizations I worked at actually rented storage space in the back of the building and one of the main offices in the front. While lucrative, it didn’t align with the mission.

This is where the Alliance Center comes in. They strive to transform sustainability from vision to reality for organizations working to support a healthy planet, a strong democracy, and a thriving economy for all. One key aspect of their model is curating partnerships through shared spaces.

Basically, they are a co-working space for impact organizations and nonprofits. Each of these organizations pays monthly rent based on the amount of space they use. Once a member, they get access to the community and partnerships that the Alliance Center is fostering. They also rent out their conference rooms both to members and to the public.

5) Develop a Social Enterprise

I was shocked when I found out nonprofits could own a Limited Liability Company (LLC). But in fact, there are many organizations that do this. The Social Enterprise Alliance defines social enterprise as, “Organizations that address a basic unmet need or solve a social problem through a market-driven approach.”

In short, you have a business that achieves a social or positive mission. I always point out that they have the heart of a nonprofit but deploy tools from the for-profit world. I saved this one for last because it is the most involved endeavor. Yet, the organizations that have successfully pulled it off have also enjoyed the most rewards.

This can help bypass some of the roadblocks from related and unrelated income. It also gives you more flexibility in growing the enterprise.

Focus Points, a family resource committed to serving low-income families, did just this. Their Director of Economic and Workforce Development realized that she would better serve her constituents by creating a job-training program that also paid them. With that, she built the Comal Heritage Food Incubator. It’s a separate entity owned by Focus Points. This restaurant and training program provides culinary skills, business training, and a regular paycheck through serving up scrumptious dishes to patrons.

It sounds like achieving economic and workforce development to me. You can dig into that journey more here.

A Shortcut to Identifying Potential in Your Organization

The best place to start to develop potential earned incomes streams is examining your organization through a slightly different lens. It’s time to step out of the box and away from your day-to-day.

Denver Food Rescue’s social enterprise Bondadosa was actually created by the leadership of the organization identifying gaps in their service. Their executive director Turner Wyatt pointed out that the process, “takes humility.”

Here are a few questions to get you pointed in the right direction:

  • What are potential gaps in your service or organization? What barriers are your customers, members, or beneficiaries running into?
  • What is your unfair advantage (i.e., what does your organization do better than other organizations)?
  • What are things in your organization that have value (e.g., intellectual property, curriculum, assets, systems, physical space)?

Starting with these questions will put you on the path to identifying opportunities for nonprofit earned income.

How to Take this Concept Deeper

If you’d like to hear about how even more organizations are developing earned income solutions tied directly to their mission, join me for a free webinar at the end of the month. From highlighting their mission to pinpointing their assets to reviewing their earned income solution, we’ll cover it all.

Sign up here.

Additional Resources:

Alexandra Black-Paulick is a marketing strategist for Positive Impact Media and the co-creator of the workshop Roadmap to New Funding Sources. This workshop gives nonprofits the tools and strategies to develop earned revenue that aligns with their mission. Alexandra can usually be found connecting with like-minded changemakers or exploring in the Colorado mountains.

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