Tag Archives: earned income

Keeping the Winter at Bay*: Earned Income Will Get Us Through!

*With thanks to the Decembrists, whose song January Hymn has been brightening my days.

It is day two of the new Administration, and hope is in the air. Despite the events at the Capitol on January 6, we had a peaceful transfer of power yesterday, and action on the coronavirus is coming.  Many nonprofits will be able to take advantage of another round of PPP and EIDL loans, giving their organizations more time to plan for revenue in a post-pandemic world. 

My advice is that nonprofits explore earning income as one component of their new revenue generating strategies.  My December blog defined and gave examples of nonprofit earned income.  This month, the blog gets more practical, guiding you through some of the issues you might consider as you contemplate what earning revenue for your nonprofit would entail. 

What if you are just starting your nonprofit?

The ideal way to start down the earned income path is to think about it when you launch your nonprofit.  Jessica Cavagnero, a partner in the nonprofit consulting firm SeaChange Capital Partners, says “…the most successful organizations have considered earned income up front as part of their strategy and have always thought strategically about how to keep it core to the organization.” 

An excellent example of earning income from the first day is Inclusion NextWork, a nonprofit focused on empowering and training the next generation of leaders in diversity and inclusion.  The organization grew out of a two-day, volunteer-led conference that brought together 60 emerging leaders.  The Chronicle of Philanthropy had just received a grant for diversity work, learned about the conference and hired INW to help with a diversity plan at the Chronicle.   In its first year of operation, INW has received almost exclusively corporate support and is only now focused on building a contributed revenue stream. 

What if your nonprofit is not new?

Unlike INW, most nonprofits have been in existence for a long, long time without contemplating earned revenue.  Here are a few things to keep in mind as you start your established organization down an earned income path.

Prepare a business plan

Make sure to have a process and business plan in place for the new venture before you start.  This would include:

Investment required over a defined period of time—almost certainly more than a year

Benchmarks the strategy must achieve to be renewed

Staffing plan for the venture. 

The bottom line: You must resource your earned income projects appropriately, with people and non-personnel dollars.  You may need to lose money for a defined period of time, as a business would if it were investing in a new product or service. 

Consider creative ways to fund the plan

You may be able to raise funds from a foundation or a major donor for your earned income pilot.  Philanthropic Investors often find these types of projects sexy, especially if the donors come from the business world.  And donors love the idea that you may eventually not need them as much as you did before you started earning income.

Be willing to exit.

Be willing to stop exploring earned income if the numbers don’t work out over time.  We all want to believe our projects will be successful, but sometimes they aren’t.  You will almost certainly learn a tremendous amount through the process, even if you decide in the end that contributed revenue is not the way to go for your organization—for today.

All We Want for Christmas Is Earned Income for Our Nonprofits

MacKenzie Scott’s latest $4 billion in gifts notwithstanding, nonprofits are struggling to make ends meet as the pandemic drags on, and the economic devastation in its wake continues. We all hope that the federal government will provide more relief for all sectors affected, including the nonprofit. Whether that help comes or not, one area many nonprofits should explore further in their quest for revenue—in the medium and long term—is earned income.

In this first of two blogs, we explore what constitutes earned income in the nonprofit world and give examples of different types of earned income. In the second, we will lay out some of the steps your organization might take as it considers whether to embark on an earned income strategy.

What do we mean by earned income?

Let’s define our terms. What exactly do we mean by nonprofit “earned income”? Earned income is revenue generated from the sale of goods, services rendered, or work performed. Such income falls into two categories: related business income and unrelated business income.

Related income is income that is closely tied to your mission. A good example is Girl Scout cookie sales, which help girls learn about finances and entrepreneurship. Unrelated income is income that is not tied to your mission. A good example is a church that notices that their building is close to a new sports stadium. They decide to sell parking during events. Since selling parking spaces is not directly related to the mission of a church, the proceeds from the activity would be considered unrelated business income.

The key difference between related and unrelated business income is that the former is tax free, and the latter is taxed. Nonprofits can generate up to 20% of their income as related business income without incurring tax and/or triggering any challenges to their nonprofit status. If you are contemplating generating more than 20% of your income as related business income, please consult an attorney specializing in nonprofit tax law.

What are the categories of earned income?

We can identify three or four types of related earned income.

  1. Selling your organization’s technical expertise. A great example of this is SeaChange Capital Partners, a nonprofit consulting firm that helps nonprofits navigate complex challenges. Most of the organization’s practice is pro bono, but it takes on three to four paid consulting projects with foundations and a few nonprofits. These projects are laboratories for learning that can then be applied to the rest of the practice.
  2. Licensing a product your organization has created for its own use. A great example of this is CoPilot, a student information system for advisors and counselors, developed by College Forward, a near-peer coaching organization that pairs recent college graduates with students to empower the students to achieve their post-secondary goals. College Forward licenses CoPilot to colleges and universities.
  3. Training and employing your clients to make products for sale. Alpha Workshops is a terrific model for this type of earned income. The organization is the nation’s first nonprofit providing decorative arts education and employment to adults with visible or invisible disabilities. The founder, Ken Wampler, had been working with Bailey House, an AIDS service provider, during the crisis of the 1980’s and early 1990’s. He observed that people with AIDS were facing severe employment discrimination. Using his background as a decorative finishes artisan, Ken conceptualized a school where people living with AIDS could be retrained as artisans and a workshop where graduates could be employed to create wallpaper and furnishings for top-flight interior design commissions.
  4. Selling products related to your mission. This is the classic Girl Scout cookie program, begun in 1917, only five years after the Girl Scouts was founded, by a troop in Oklahoma that wanted to raise funds for its initiatives.

In many cases, the lines blur among these four categories, but the examples are instructive and may stimulate creative thinking for you and your team.

Stay tuned for my second blog on earned income, coming in January. Happy Holidays to all, and may 2021 be a brighter, healthier year for the planet!