As an intern at Inspiring Capital this past summer, I developed an interest in how nonprofits can achieve sustainability. Although I had myself started and run a small NGO at age 16, the concept of earned income was both new and puzzling to me. Hearing many say that nonprofits should be run as businesses, the sociologist in me kept wondering whether earned income could truly be a strategy to ensuring nonprofits’ independence without compromising their mission.
With Inspiring Capital’s support and many more questions in mind, I compiled a list of some of the most intriguing organizations I had come across throughout my internship, e-mailed and asked them to give up some precious time to talk with me. These conversations were inspiring, insightful, informative and well-worth writing a short piece to highlight some of the main points made by the leaders I talked with.
The following five steps can help nonprofits explore the possibility of earning income and develop effective strategies for income provision beyond fundraising.
1. Make sure earned income is on the table at Board meetings
Daniel Rabuzzi, Executive Director of Mouse.org, shared that his organization’s Board of Advisors is strongly committed to expanding income generation through partnerships with interested parties: “We talk about this all the time because traditional philanthropy isn’t able to cover what we’d like to see happen."
2. Have a rationale!
While he sees the value in developing earned income strategies for nonprofits, Programs & Aging Initiatives Manager at Citymeals on Wheels Jose Luis Sanchez emphasized the importance of being intentional and thoughtful when deciding to explore earned income strategies versus traditional fundraising. According to Sanchez, pushing for earned income as a nonprofit may bring business and reputational risks that should be carefully considered. The size of a nonprofit, together with public perceptions about the work it does and target groups it serves are some of the factors which may complicate, if not prevent an organization from pursuing earned income.
Mrs. Ann Morris, CFO of NYC Outward Bound Schools similarly encouraged careful consideration of “Why?” and “How?” to go about earned income. Communicating the rationale for choosing earned income over philanthropy and vice versa is critical. NYC Outward Bound Schools asks inner city schools for some contribution towards the implementation of wilderness and adventure programs tailored to their students and fundraises the rest of its costs. “We expect our schools to pay something, but it’s clear that it’s nowhere near the real price," Morris said. Charging inner city schools a small percentage of the cost of the programs NYC Outward Bound Schools provides them with is a strategy which fits well with the organization’s long term growth plan, as well as with its commitment to empower communities to make smart choices for their children’s education.
3. Look for alignment with values and missions
NYC Outward Bound Schools ensures that everything they do is within their mission. The adventure and team-building programs offered to organizations and schools, as well as professional development consulting, are firmly grounded in their educational approach and mission to bring adventure and discovery into schooling and help the organization earn much needed income to support its core activities and constituents. Providing these services not only doesn’t detract from the organization’s main commitment to serving youth from poorer communities, but also helps the organization enhance the quality of its offerings and decrease its dependence on philanthropic donations. That said, a clear understanding of how to manage income must be in place. While income areas prove more difficult to fundraise for, design of new programs is where fundraising is vital.
In the case of Citymeals on Wheels, understanding of the added value to income generation has not led to a change in how the organization is funded. Despite being aware of practices whereby charitable food giveaways have been complemented with income generation activities, Citymeals on Wheels has decided that earned income doesn’t fit their unique to NYC model. The organization funds 31 community-based agencies, which in 2015 alone have brought over 2 million meals to 18,000 elderly citizens of New York City, in addition to granting them with priceless human interactions and attention.
4. Create win-win situations
Mouse.org empowers all students to use technology as a force for good, with a focus on young learners from under-resourced communities. Recently the nonprofit partnered with for-profit cyber security leader Symantec in what can be considered a great example of creating high-quality and high-impact “win-win” collaboration.
Symantec contracted Mouse.org to create a curriculum in order to educate young learners about cyber security threats. This project not only generated income for Mouse, but was also included as a content module in their comprehensive curriculum taught to high school students.
Digital Divide Data (DDD) is a hybrid social enterprise (combination of non-profit and for-profit entities) which delivers services and solutions that clients use to create, manage and distribute digital information. The organization has offices in Cambodia, Laos and Kenya where it trains local youth, employs them and offers them scholarships to pursue university degrees while gaining valuable work experience. With more than 80% of its earnings coming from earned income, Digital Divide Data is the pioneer of “impact outsourcing”, a practice predicted to grow tremendously in the near future due to the increasing concern for social impact by corporate partners as well the public.
Michael Chertok, co-founder and Executive Vice President of DDD, talked to me about earned income as a way to engage organizations with your mission, even if they are unable to contribute through traditional philanthropy. “We couldn’t request a grant, for example, from Stanford University, but they have needs for services and we are able to meet these,” he said, speaking of one of the many digitization projects DDD has delivered. Satisfied with the quality of services provided as well as the impact made, some corporate clients that the organization has served are also donors.
5. “Don’t be afraid from earned income, even if you have to be taxed”- it pays off!
Self-proclaimed “fierce advocate” for earned income, Daniel Rabuzzi, argues that the opportunity to fund more programming and serve more constituents makes earned income well-justified.
According to Rabuzzi, many nonprofits overlook income generation for two main reasons: first, they perceive income generation as an inevitable distraction which will diminish the organization’s capacity to serve its main beneficiaries. Additionally, many organizations fear that earned income will be taxed.
However, as CFO Ann Morris assured me, nonprofits are taxed only for “unrelated business income” and not income earned through activity aligned with the organization’s legally stated mission. For example, if a nonprofit owns a coffee shop, yet selling beverages is not directly related to its mission and core activities, it would get taxed for the income produced by the coffee shop.