10 reasons to consider earned revenue to supplement and grow unrestricted surplus revenue

This post originally appeared in Gail Bower's newsletter BowerPower Papers. Get on the list to be the first to receive more important articles just like this.

Nonprofit organizations often have a big problem when they try to generate revenue. 

Most nonprofits rely too heavily on donations and other forms of philanthropic revenue. That can be risky, because philanthropy is based somewhat on whim. 

The donor has to want to give the nonprofit money. If they don’t feel like giving, the non-profit’s revenue dries up.

Securing foundation grants and government contracts can feel equally capricious. 

So what’s an organization to do?

Consider earned income to supplement these important sources of revenue. Here are 10 reasons to consider diversifying your revenue through earned sources.

1. Free is a fallacy. Not all of your programs need to be free. Or free to everyone. One of my clients found a new market for a service that never generated a penny. They landed a $5000 contract out the gate, enabling them to expand their mission and delight the staff who now contributed more positively to the bottomline. 
2. Expand your mission. Finding a new audience for your service, as in the case of the client above, allows you to expand your mission, reaching new audiences.
3. Reduce your philanthropic challenge. Having earned revenue that makes sense with your mission means you’re able to reduce the amount of revenue your development team has to generate through philanthropy.
4. Boost your collective confidence. You likely have plenty of value to offer. How great would it feel to actually get paid for that value?
5. Earned = unrestricted. Earned revenue is unrestricted and can be used for general operating expenses, building your reserves, and investing in hard-to-fund expenses.
6. Perfectly legal. You are well within your rights to generate earned revenue as a nonprofit organization, provided that it relates to your mission. It’s smart business. Do check with your nonprofit attorney and accounting team. They will help you make sure you minimize your tax liability.
7. Put the “profit” in nonprofit. Unrestricted surplus revenue is every nonprofit CEO and board member’s vision of happiness. It’s how your organization continues to have an impact.
8. Get off the grant hamster wheel. Depending on the form, earned income allows you to make money whenever you need it.
9. Morale building. Imagine how your program staff feels when their work is  always limited by arbitrary grant parameters and budget constraints. Imagine how they would feel if their efforts become revenue centers.
10. Entrepreneurship is fun. We live in a culture in which creativity and the entrepreneurial spirit abounds. From new apps to new foods, people are experimenting like crazy. Not everybody likes launching initiatives, but some people (like me!) love it. You may have someone on your staff or board who would love to tap into his or her enterprising spirit.

I have catalogued more than 91 sources of nonprofit revenue. In fact according to Giving USA and the National Center for Charitable Statistics, if you put all the revenue generated by all 1.5 million organizations into a big pot and then categorized it all, earned revenue would be the biggest source. In fact 47.5 percent of all nonprofit revenue comes from fees for services.

If this is your year to diversify your organization’s revenue, you owe it to your team and the people you serve to consider earned revenue.

Additional resources:

To learn more about earned income, download Gail Bower's Guide to Earned Revenue. You'll have your questions answered by Gail and her colleagues, a CPA and a nonprofit attorney.