November 19, 2017
 
Finding Profits in Nonprofits through Earned Revenue

By Stephen Brand

Stephen Brand
To build sustainability through 2010 and beyond, Massachusetts nonprofits are increasingly interested in finding sources of earned revenue—income from business transactions—in addition to their traditional sources of gifts, grants, and subsidies.

Typically, nonprofits have a clear vision of their mission and an incredible passion to deliver, but they have difficulty seeing how to translate that mission and passion into earned revenue.

Arts and culture organizations often have the easiest time identifying earned income opportunities, such as admissions fees, membership dues, building rentals, food services, gift store sales, and outreach programs. But all types of nonprofits can uncover new revenue streams. And by earning revenue through activities related to their mission, organizations are less likely to be subject to Unrelated Business Income Taxes (UBIT).

If you were a revenue detective, scanning through the nooks and crannies of your organization for a new source of mission-driven revenue, how would you start? It’s easy to miss ideas just screaming to be developed at organizations of all sizes. To find them, look for the intersection of your organization's assets, your passion, and the market's needs.

Start by noting your organization's assets—the kind that don't show up in a bank statement. Your assets could be defined as physical structures, staff skills/knowledge, content, or programs that were great for just a few purposes but never expanded.

For example, when a private girls school's Olympic-sized pool and athletic facility was used for less than four hours a day, many suggested opening it for rentals or as a general health club. Although that would not fit with the school's mission, a high-end wellness center for women could be a powerful option. By providing access to trainers, peer groups, classes, and activities focused on women's wellness, the school could expand on its mission to support the personal development of girls.

Where do your assets and passions intersect? For example, in the process of creating new revenue streams, Boston’s Museum of Science looked at its passion for science learning, its years of accumulating collections of science activities, and the expertise of outreach department staff. The museum partnered with publishers, including the Nature Company and Running Press, to produce a number of products, including The Inventors Workshop Discovery Kit, which is still being sold 20 years later.

Now look for a community need or market niche that complements your assets and passions.

For example, services that are targeted toward an underserved population would be a marketing success if repackaged for those who could pay for them. The resulting income would provide funds for what you really want to do. This was the case for a Midwestern museum that operated a local summer camp. One of its camp sites in a wealthy suburb generated enough net revenue to fund a one-week program for the underserved. The museum embarked on a plan to establish camps in affluent and middle-income cities and towns. Within two years, and because of the broad success that attracted media attention, the museum was able to establish sponsored camps for the underserved. The camps now operate in 48 states, serve more than 55,000 children annually, and contribute substantial revenue to support the museum's core mission.

Now that you know what you're looking for, where do you look?
  • Board members’ contact lists. — look here for strategic partners to help unleash your assets as products, programs, or services. For example, when a nationally known nonprofit computer trivia competition was moving to the Internet, a board member introduced the organization to the president of an online advertising giant that allowed nonprofit participants to globally recognize their donors, thereby providing their supporters significantly more value.

  • Programs and services that you offered years ago that are ripe to be remodeled. — Back in the 1980s, there was a snail-mail international science pen-pal program that connected 2,500 working scientists from corporations, universities, and labs with 25,000 elementary schoolchildren. Today, that program could be refreshed and deployed effectively using social media technologies and multi-media online sharing platforms, which would eliminate two of the programs' most costly line items—postage and materials.
Don't just look—listen, too. Say "yes," rather than the typical "no," to those who ask your organization to do things you don’t already do. These could be new areas of revenue development. For example, one impressive national organization inspires underserved young children and their families to become active readers. To remain focused on programmatic goals, this organization has been saying "no" when individuals ask to buy their carefully selected packages of high-quality books. Instead, the organization could sell them in any number of ways to people who have the means to purchase the books. This would fund the organization's mission-critical work while aligning well with the mission itself.

If your potential new revenue stream is not obviously related to mission and therefore potentially subject to UBIT, you and your accountant may decide that the added income is so valuable to your core that you're willing to pay the taxes. Consult with an account when exploring any options with tax implications.

Economic times like these are great opportunities to start new ventures. These new problems need innovative solutions that nonprofits can deliver by unleashing their passion, drive, and creativity to deliver quality and results. By putting on the hat of a revenue detective, you will begin detecting the unseen opportunities and assets of your organization and exploring their potential for mission-driven revenue.

Dr. Stephen Brand, president and chief imagination officer of the New Enterprise Factory, works with nonprofits to uncover and unleash new revenue streams. Contact him at sbrand@enterprisefactory.com.

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