Nonprofits include several ways for donors to give by running multiple campaigns or events throughout the year. Still, it’s a struggle to find enough donors to fund a particular project or raise enough money to buy equipment or something else for the mission. Most financial professionals suggest that nonprofits generate revenue to rid themselves of these situations. They would include earned income as an important way for nonprofits to raise more money.
This article is the ultimate guide for you to get insights into nonprofit earned income and the best ways to generate revenue.
- What is Earned Income for Nonprofits?
- What Does The IRS Say About Nonprofit Earned Income?
- The 4 Benefits of Earned Income for Nonprofits
- 6 Ways Nonprofits Can Earn an Income or Make Revenue
What is Earned Income for Nonprofits?
Earned income is all the taxable income you get from working for someone else, yourself, or a business or farm you own. For a nonprofit, that means any income that isn’t donated. It could be product sales or offering services to the community.
For example, Girl Scout Cookies are something everyone looks forward to, and it is the organization’s primary income source. While most nonprofits won’t have as much success as the Girl’s Scouts, earned income is still an excellent way to raise money for your nonprofit.
What Does The IRS Say About Nonprofit Earned Income?
The IRS allows nonprofits to earn related and unrelated earned income.
Unrelated business income (UBI) is any product or service you can think of, but this income will be taxed at the corporate rate. Nonprofits also cannot raise most of their revenue from unrelated business income. The general rule is to keep this income at 20%.
Related income still qualifies as a nonprofit income and is not taxed. The source of any related income must be substantially related to the nonprofit’s purpose. If your nonprofit is a therapist’s office, and you earn income from providing therapy services, this is related earned income.
Most nonprofits don’t have it quite as easy as that, but the IRS has exceptions that allow nonprofits to earn related business income.
- Run by volunteers.
- Activities carried out for members’ convenience.
- Selling donated merchandise.
Habitat for Humanity ReStore generates related earned income with their stores run by the organization’s volunteers and sells all donated items to the public.
The 4 Benefits of Earned Income for Nonprofits
1. No strings attached
Nonprofits would love if all donations were unrestricted, but gifts come with limits in many cases. This is especially true for significant donations since most major donors would like a say in how their gifts make a difference. On the other hand, earned income is entirely unrestricted and can be used to fund all areas of an organization.
2. More diversification
Adding earned revenue to your donation page also gives donors more options on how they can support the organization. Some may be more interested in buying a product you’re selling or choosing one of your services than making a donation.
For example, if you sell donated items such as furniture, shoes, appliances, building materials, etc., many in the community would love to shop from you. Thus, helping you earn revenue for your organization. Your volunteers can help you fetch these items from donors and set up a store to sell them to people in the community. This also makes it a related income for you.
3. More marketing options
Earned income is also an excellent marketing opportunity. Storefronts and products give people something to visualize when they hear your name. Products and services you sell also help you attach a brand value to your nonprofit. You can also reach more people with the help of your buyers through word of mouth.
4. Brings you closer to your donors
Customer service is one of the best ways to learn what your donors want. If you’re not providing items that interest donors, you’ll discover that immediately. Selling items or services face to face also gives donors a way to share concerns and offer suggestions.
Train your volunteers on how to react and keep track of these concerns and suggestions. Remember to track all communication in your donor database. Donorbox helps you add communication notes to each donor record. Since most purchases will be offline or face-to-face, your volunteers can also create new donor records on Donorbox with information taken from them. This helps you create a strong donor database that you can leverage for your upcoming events and campaigns.
6 Ways Nonprofits can Earn an Income or Make Revenue
Adding earned income to your nonprofit requires several steps. You’ll want to find a product or service that fits your nonprofit’s mission, convince your board that it’s the right fit, do a market survey, write a business plan, and market the business to your donors and the public.
The first step may be the hardest if you don’t have any idea of where to start. Below are a few ideas to help you get started.
1. Sell products
If you’re going to start earning additional income, the most obvious way to do it is to sell a product. T-shirt sales are one of the most accessible products because of the host of online printing options. Your nonprofit can design a t-shirt with your logo or other campaign image and either print a batch and then sell them in person or sell them directly on your donation page and leave the shipping to the printing company.
For example, Shear Outreach sells its branded t-shirts using this Donorbox-hosted fundraising page. You can see the pricing options that they’ve added to the donation form. It’s the simplest way to get started with your product sales online if opening a store is not an option right now.
T-shirts aren’t the only merchandise your nonprofit can sell. Hats, coffee mugs, banners, etc., are all an option. All that’s holding you back is your imagination. Check out this example of a nonprofit selling hats and shirts both through an event page on Donorbox. This helps them add different merchandise options as per their pricing strategy.
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Pro tip: Find an item or two that fits your nonprofit. For example, if you’re an environmental organization, you can sell environmentally-friendly products like reusable bags.
2. Rent out space
Another easy earned income option for nonprofits is room rental. If your nonprofit has its own location, there may be a few rooms you don’t use as often that can be rented out to businesses or other nonprofits and associations. Churches can definitely take advantage of this option since their primary location is only used a few days out of the week.
Lyle Activity Center rents out the organization’s space through this Donorbox donation form. They have included different renting options as per the need of the community. It helps them raise revenue to preserve the old school building and park.
Pro tip: Ask around and see what’s missing in your community. Is there a way you could realign your location to make room rental a long-term option?
3. License technology or intellectual property
Nonprofits selling software and apps are another example of earned income. This is difficult if you’re not tech savvy, but you can go beyond technology. If you’ve developed a unique way you’re able to provide a service to beneficiaries, you can license and sell it to other organizations.
4. Consultations and training
Nonprofits can also earn additional revenue through consulting and training. Remember, you are an expert in your field. As such, your nonprofit should share that expertise with schools, businesses, and other organizations in your community. You can provide specific training, teach best practices, and help manage and develop projects.
Chapter Mental Health uses the below donation page to offer a Mental Health First Aid Course to people. As you can see, they have two options: standard and discounted for the faith communities. Since they’re a UK organization, their donors get a chance to boost their donations by 25% using Gift Aid on the Donorbox donation form.
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5. Offer services
Products are not the only thing your nonprofit can sell. Some nonprofits automatically have a service to sell, but others may have to think outside the box. Remember, your expertise and internal systems are worth something.
If your nonprofit has found a way to fix a problem with your beneficiaries, you may be able to sell that service to others in your community.
6. Sell access to your database
This one is tricky. Your donor database is the most important product you own, and you’ll only be successful in collecting crucial donor information if your donors trust you. Some nonprofits have found ways to sell donor information while still being trustworthy.
You’ve hopefully already filled your database with details on donors’ locations, biographical and financial information, and other interests. You can use it to sell access to those interested in direct-mailed marketing, sponsored content, and customized training.
If your nonprofit chooses this option, inform all donors that you’re doing this before collecting their information. Create a written policy and let them know how you’re going to use the collected information. The best way to go about it is to let all donors know why you want to give other organizations access to their data and how this will help your nonprofit.
Nonprofit earned income is an excellent way to raise revenue for your nonprofit. However, adding it can be time-consuming, so it’s not something that you should take lightly. It’s essential to gain internal support, create a business plan, and perform market research before making it official.
If your nonprofit is looking at other ways to raise money, we’ve written several articles to give you some ideas.
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