Thanks to a drop in government funding, increased competition for private grants, and the explosion in large galas, nonprofit’s are expanding their search for new consistent revenue sources. Often this search leads to the exploration and development of earned income opportunities. If successful, the organization becomes more stable by developing and controlling a proportion of its own revenue.
Nonprofits generating earned income act similar to a business. After all, a nonprofit develops a successful earned income stream by creating and selling a product or service. To develop a product the consumer needs/wants, leaders research the market and identify their niche.
There are three different types of earned income strategies. The first is a fee for service model where the service is an integral part of the organization’s mission, for example hospitals and daycares. The second is an effort the organization develops solely for the purpose of earning income. The third is a hybrid of the two types.
Although many nonprofits are focused on earned income opportunities, nonprofits have been developing them for centuries. One of the most ubiquitous is the resale store. The first resale store was developed at the turn of the 19th Century by Goodwill Industries. The Goodwill resale store provides training for its clients as well as sells donated reused clothes and household goods. Goodwill uses the store to provide job training and then helps the client find employment. Once that client finds permanent employment elsewhere, another client takes their place at the Goodwill store.
Today there are thousands of nonprofits with resale stores as well as partnerships with businesses that operate resale stores to benefit nonprofit organizations. Some resale stores employ the Goodwill model of training clients needing job skills, others use the store to obtain items clients need as well as selling items, and others sell all of the donated items to raise earned income.
Some earned income opportunities provide permanent employment as well as trains clients. Often this model raises ethical considerations. Sheltered employment opportunities, for example, are earned income opportunities often utilized in organizations serving the disabled. These self-contained worksites usually do not provide opportunities for the clients to integrate with other nondisabled workers or empower clients to learn more than one employment opportunity. Instead the goal is for clients to work in the same position at the nonprofit’s workplace assembly line for the long term.
The ethical issues stem from how the client is compensated. Often the nonprofit can not generate revenue without paying the client less than market wage. In these cases, the goal should be for clients to move on to market opportunities and the nonprofit’s compensation is similar to a stipend.
Many of these activities are social enterprises but social enterprises do not always generate earned income. We will continue exploring social enterprises and earned income in our next post.
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