By Katie Lord
The news from donor research reports and national studies paints a bleak picture for nonprofit revenue in the future. The number of households and individuals donating to charities annually continues to decline with less than 60% donating annually and new donor retention rates at less than 20%. While those fewer donors are in fact giving more money as seen in the GivingUSA data, the decline in overall donor participation does not work long term in our sector’s favor. This leads to a dynamic of inequity where wealthy donors often set national giving priorities.
Within the current philanthropic landscape where nonprofits are growing and donors are decreasing, the basic math for revenue growth is just not there. The dwindling number of donors is causing an increase in competition for donor relationships because multiple organizations serve the same or similar missions. Hence, the scarcity mindset within the nonprofit sector that has always existed is further intensified and enlarged to the point of negatively impacting revenue.
The nonprofit scarcity mindset is widely defined as the belief that there isn’t enough time, talent or treasure from donors to go around in order to achieve each organization’s mission. That belief is becoming a reality. When it comes to the sector’s reliance on the generosity of individuals, corporations and foundations for revenue-building, the numbers are telling us that there is great cause for concern unless the nonprofit funding paradigm changes.
The scarcity mindset reinforces a narrow, single focus in the philanthropic sector which in turn overshadows the numerous opportunities often right in front of us or currently available within our mission scope of work. What are those opportunities? Earned Revenue.
Earned Revenue is a product or service that an organization provides or sells on the open market, sometimes referred to as “fee for service” or “contract work.” Examples may include things like performance tickets or museum entries, memberships, courses or trainings, products such as coffee, food service or apparel, office and event space rentals and even manufacturing. Earned Revenue sources are ineligible for tax deductions, yet, the proceeds from Earned Revenu sales provide unrestricted funds that can be used by an organization at its own discretion. Earned Revenue often leads to more organizational sustainability by “covering” or reducing operation expenses and allowing philanthropy dollars to go directly to service and impact work, which is where most donors direct their gifts anyway. With Earned Revenue, overhead ratios become a moot point.
In the future, nonprofit sector success is clearly going to be predicated on integrating more with the business sector. By engaging with more traditional consumer markets, nonprofit organizations can open up new opportunities to reach new audiences, continue to increase their brand and mission awareness and enhance sustainability by diversifying their revenue sources.
We are already seeing this integration of business and philanthropy take shape in the corporate sector. This is illustrated by the rise of cause marketing campaigns, social ventures and the creation of the Benefit Corporation (B Corp). Organizations like Conscious Capitalism and Social Venture Partners add to the continual movement, growth and investment by businesses with philanthropic partners for “good” through avenues such as educational programs and social investments. According to Giving Done Right 70% of nonprofits in the United States and 50% of nonprofits in the United Kingdom have Earned Revenue according to The Commercial Charity.
Consumer behavior is supporting this emerging trend with 85% of US consumers willing to pay higher prices for products with a perceived social impact or benefit. This can be something a nonprofit offers to the larger public as a “fee for service” or a product. There is also an increase in the number of businesses or corporations that collaborate with nonprofits for cause marketing and co-branding opportunities where nonprofits choose to interact with companies that are deemed socially and environmentally responsible. The lines between consumer and philanthropic behavior are already beginning to blur and this will only continue to accelerate.
It is undeniable that almost every nonprofit has something they could “sell” to earn revenue; whether it be a product, service, an area of expertise or technology. An exercise to explore with your development team, leadership team or board is to brainstorm opportunities for Earned Revenue. The only limits are your mission focus and imagination. From this brainstorming session, there are numerous articles, books and guides to help your organization implement and scale the Earned Revenue projects you identify.
Here at Proof, we have found that philanthropy organizations with Earned Revenue think differently than their donor reliant counterparts. In fact, we have our own research data that strongly supports the Earned Revenue trend in philanthropy. If you are interested in learning more, send an email to EarnedRevenue@proofpositioning.com.
Truly, the scarcity mindset is a pervasive and limiting belief that we have allowed for far too long to impact us in the nonprofit sector. It is time for us to embrace not only the unlimited possibilities for change, but also our customer base by expanding the reach of our nonprofit missions beyond donors to the open market.
Earned Revenue is the future of sustainable philanthropy.