Hundreds of nonprofit leaders across the country shared important questions they had about earned revenue and how this source could be of benefit to their organizations, supplementing less reliable philanthropic revenue.
Download Gail Bower's Guide to Earned Revenue.During a webinar on earned revenue I presented last week, I answered many of these questions, but there were still lots of good ones that remained unanswered. This post, along with a Guide to Earned Income I compiled, attempts to answer more.
Download Gail Bower's Guide to Earned Revenue.During a webinar on earned revenue I presented last week, I answered many of these questions, but there were still lots of good ones that remained unanswered. This post, along with a Guide to Earned Income I compiled, attempts to answer more.
What is it exactly and how could it benefit our nonprofit organization?
Generally nonprofit organizations generate revenue from one of two types: contributed or earned. Contributed dollars, which may be restricted to a particular program or unrestricted, are donations from individuals, corporations, and foundations. Earned income, on the other hand, is revenue generated from an exchange of value.
What are some examples of earned revenue?
Organizations can be creative when it comes to earned income. I’ve cataloged more than 81 types. Broadly they fall under three categories:
- Assets. Something you own, produce, or generate that can be monetized. These could be hard assets, such as real estate, products, or even waste, or soft assets, such as a service or intellectual property.
- Points of Leverage. Opportunities for earned revenue may arise from a new collaboration. Another point of leverage may come directly from your mission, such as by selling a service to a new audience or creating a social enterprise. Think Girl Scout Cookies.
- Marketing Mojo. Sheer creativity and marketing may inspire other earned revenue sources. Corporate sponsorship, events, tours, trips, membership, and merchandise are all sources of earned revenue.
What are the risks and other considerations?
Three main risks —business, legal, and tax — need to be evaluated and mitigated. While no one is omniscient, a strategy and strong feasibility study will guide the organization in its decision-making about whether and how to proceed.
Working with a revenue strategist will maximize your opportunities for success. For example, a consult- ant such as myself, who focuses on generating revenue and has developed intellectual property, can see potential you may miss.
In my work with clients, I share processes and tools to quickly assess whether a revenue form fits with the strategy and mission. Besides developing a strategy and business model, I share ideas about how to overcome challenges; how to keep costs low to realize returns; and how to grow revenue long into the future.
Legal and tax counsel also should be involved in the process to uncover and mitigate potential legal considerations and tax liability.
What are the costs of earning revenue? How long does it take to make that expense worthwhile?
Since so many sources exist, it’s impossible to generalize here. Depending on the revenue form, the costs will take on different forms. Staffing, marketing, sales, and delivery costs are just a few to consider. The business model, a feasibility study, and smart pricing strategy based on value will uncover the costs and project the return on investment (ROI).
Even a down-and-dirty, back of the napkin approach towards feasibility can help you make an initial go/no go decision. If it’s not going to be profitable — unless it’s a social enterprise that is solely mission-driven — why bother?
How does an organization get its board and staff engaged?
The board and staff can be great sources of ideas, and engaging them in the process of developing earned revenue sources allows them to take ownership. A key trait in the culture is a sense of entrepreneurialism.
Cultures that simply want to crank out grant proposals or solely rely on government contracts may have a strong aversion to any risk, no matter how sound the mitigation plans. Enterprising leaders can make shifts to create cultures more open to new ideas
and experimentation. Engage the team in a fun, strategic discussion and brainstorming session.
How can staff at organizations that are already so over worked and stressed take on creating a new business along with their other work?
Overworked and stressed staff is not a sustainable formula, whether you have earned revenue or not. Something has to give.
An outside resource can lead the strategic process and help leadership determine the best and leanest ways to begin. Outsourcing and streamlining certain activities — even letting go of low value activities — and investing in additional staff at the right time can make a new venture work and worthwhile. It’s fair to say that to grow and benefit from earned income activity, organizations will have to make certain investments as a cost of doing business.
Will this preclude me from accessing other funding streams?
Organizations are able to generate both earned and contributed revenue. A good rule of thumb is to be sure the revenue is related to your mission.
Is it worth the time and effort compared to writing grant proposals?
The short answer is that a feasibility study is an important tool for assessing ROI.
If you think about it, grant funding is pretty high-stakes. You’re submitting a proposal that is competing with hundreds or thousands of others, hoping the committee rubber stamps it. Don’t get me wrong; it’s important revenue for many nonprofits. But securing these dollars is somewhat out of your control and has long odds.
Earned revenue, however, depending on the source, can promote self-sufficiency because there is an ex- change of value. Many organizations think about earned revenue as a piece of their overall funding pie. That piece may represent 20 percent or 80 percent of the organization’s revenue, but it represents a big relief to leadership, especially because these are unrestricted dollars.
Can we hire an outside entity to earn revenue for us and how do we go about it?
The sale and distribution of certain revenue sources may involve outside resources. For example, consumer products may be sold on Amazon or through a retail outlet. There are outside resources that handle auction items, soup to nuts.
However, other forms of revenue, such as corporate sponsorship, membership, or event tickets, are best sold through internal resources, including board members and volunteers. Your organization will have better control over the client relationship, sales process, and quality.
How could we get started developing earned revenue?
Start by updating your organization’s strategy so you’re clear where your organization is heading and what it will be in the future. Be sure you understand the drivers of your business model. Then generate, design, and evaluate ideas that emanate from your strategy and business model. Mitigate risks through feasibility planning, and create your launch plans.
What is the best strategy for an organization to continue to receive earned revenue from the same source annually?
Depending on the source, the best strategy is to innovate to make sure that the revenue source is competitive and meets clients’ needs.
To learn more:
- Purchase the webinar recording of From Money Pit to Moneymaker: The Nonprofit Executive Guide to Earned Income by clicking here.
- Download the complete Guide to Earned Revenue, click here. It’s free.