How do nonprofits owners make money?
Let’s find out:
Table of Contents
- Nonprofits, at the federal level, can receive contributions from individuals
- Finally, non-profits make money on the sale of specific items or services in some cases, too
- Having worked in a large Not-For-Profit, I can say that the short answer is they don’t
- Nonprofits, also called not-for-profits or NGOs, make money primarily
- through donations from individuals and companies
- We make money by creating high-quality social enterprises that both our donors and target population like
- Monthly donations and selling products or services
- Social media presence
- Dues payments
- Selling things
- Partnerships and sponsorships
- Non-profits receive their income primarily through fundraising
- By applying commercial strategies in an organization, it has become possible to maximize social impact while earning profits
- Profit vs. Nonprofit
- How they make money
- For-profit companies share profits with their shareholders
- Membership dues payment
- Making a profit from related activities such as fundraising for a particular cause
- Making a profit from unrelated activities such as renting property, product sales, and royalties
Psychologist | Researcher | Strategy Advisor | Performance Coach
Non-profits make money in the same manner that for-profits do; this is one of the misnomers about non-profits. They structure their organizations and account in similar manners. They still pay employment taxes and other taxes as they grow in scope.
However, they are afforded a few opportunities for-profit entities are not that reduced or eliminate federal and state revenue, and organization taxes and fees:
They may allocate future years operating budgets as future-holdings without paying taxes on this amount, whereas private organizations would. This way they can accumulate, within guidelines, reserve cash on hand for future expenses that for-profits would otherwise pay taxes on.
- Some nonprofits make money off membership fees and services.
- Some nonprofits make money off charitable giving of donors only.
- Some nonprofits make money off charitable giving from corporations.
- Some nonprofits make money by providing goods/services as part of their mission.
Nonprofits, at the federal level, can receive contributions from individuals
This is why they are federally regulated (typically known as a 501c3, but there are other formats). This allows individuals to contribute money, and deduct that against their personal taxes; meanwhile, the nonprofit does not have to pay revenue taxes on the receipt of funds.
This is where most large non-profits generate their income by hosting events (often at no-cost or for reduced fee’s for the facility and vendors who get a tax deduction for their contribution of services and goods), and then charge for attendance, conduct auctions, or simply ask for funding.
Calling yourself a non-profit is not the same as being a charity or non-profit. There is a non-profit status for buildings, charitable groups (fraternal, or professional association), that do have variations on requirements. However, they also tend to have other options.
For example, in many states, if you are a nonprofit and manage a facility that is made open to the public for non-fee use (library, or study rooms, or community-event rooms) this can make you eligible for tax deductions on property taxes that for-profit entities could never obtain. But you must identify the type of non-profit structure you seek to make money and file accordingly.
Finally, non-profits make money on the sale of specific items or services in some cases, too
In this regard, their corporation acts just like a for-profit but all expenses are deducted as operations, and future operations expenses are deducted, reducing the likelihood they will pay sales or federal taxes on those goods or services.
For this reason, many non-profits own a subsidiary that is for-profit because they generate a vast amount of revenue through those for-profit, non-qualified services/goods.
They then directly contribute the revenue to the parent non-profit. A For-Profit can NOT own a non-profit as a subsidiary – that is viewed as a likely tax avoidance shelter.
Unfortunately, there is a very basic and simple non-profit structure that could help many truly charitable focused groups: charity status. These are managed at a state level.
Charities are identical to a federal non-profit (that can take 6-15 months to be approved by the IRS) and operate with smaller board requirements than Federal approved versions. However, charities are exempt from taking individual contributions.
Contributions from individuals can only occur through the purchase of goods/services, but direct giving – money for the cause and not in return for specific goods or services – can ONLY be given by corporations.
Many corporations require a 501c3 because it acts as a vetting process for the private company, however, it excludes many local, home-town hero events and programs that could REALLY benefit from small corporate contributions that really do not make an impact in larger and better-established 501c3.
Reminder to Readers:
If someone is starting a non-profit, remember: run it like a for-profit business. track expenses, fee’s and payments; focus your non-profit into a single and specific vertical that will allow you federal 501 status as soon as possible.
Mixing topics (education, social services, research, and spirituality, for example, is a more challenging non-profit status to earn than a mission dedicated to ONE of those qualified areas); consult with CPAs.
Their professional association, more so than the state bar associations, have expectations that CPAs engage and support non-profits and charities; therefore, they get continued education credits for volunteering time (or vastly reducing fee’s).
They have always been the best source for veterans I have coached in setting up not just their non-profit but also their associated P&L and other forms.
Global Principle Consultant | Author
Having worked in a large Not-For-Profit, I can say that the short answer is they don’t
That’s what qualifies them as a tax-exempt status entity. That having been said, Not-For-Profit organizations bring in money, pay employees, buy the tools and equipment that they need to service their customers.
Take a not-for-profit hospital for example. Patients are billed for the service and the money that is collected over and above the costs (what the private sector would call “profit”) is “money to invest”.
The money to invest is used to support the charter of the organization. It may be used to provide low- or no-cost care to under-served populations. NFP organizations may also have full-time fundraisers tasked with augmenting the money collected.
There are also workers whose job is to obtain grants to improve the organization’s capabilities. The primary goal of every organization is to ensure it’s survival.
Chief Communications & Strategy Officer, Community Health Charities
Nonprofits, also called not-for-profits or NGOs, make money primarily
through donations from individuals and companies
These donations can come from workplace giving campaigns, checks, cash, mobile app donations, website donations, cause marketing (like rounding up at the cash register), event fundraisers, bequests, and other sources. Nonprofits may also receive corporate, foundation and government grants.
Most nonprofits, except outliers like YMCA or Goodwill (which sell memberships and household items), do not sell a product but instead offer impact – a certain outcome they seek to achieve like ending childhood cancer or improving overall community health.
The nonprofit either funds or directly provides programs and services that accomplish that mission. Supporters of the nonprofit donate money to see the mission carried out and the desired impact achieved.
Director of Economic Development, Focused Community Strategies
When people walk into our coffee shop or see one of our affordable homes, they personally experience the impact we’re making. Most of the time, that makes people want to get more involved.
In the end, we get 75% of our revenue from earned income as we attract customers and are still growing our donor base.
Grant Writer & Nonprofit Consultant
Nonprofits must generate revenue just like a for-profit business. While they are held to different laws and restrictions than for-profit businesses, nonprofits must establish different income streams to fund their programs and operations.
Nonprofits make money by having different revenue streams so they are not dependent on one source of income, for example, a state grant.
- A lot of nonprofits have membership programs, most host annual fundraisers, some have state contracts.
- There are successful nonprofits who operate on the revenue generated from sales or providing fee-based services.
- Nonprofits should have a combination of individual donors, corporate donors, fundraising events, sales, grants, etc. to thrive.
Grant Writer | Volunteer Recruiter | Non-profit Consultant
Grants and donations are seen as typical ways for nonprofits to make money. The reality is the ways in which a nonprofit can make money are only limited by imagination!
What I have seen is that the most successful nonprofits realize that they are a business with a mission and have a strong business model and deliberate strategy for moving forward. Multiple sustainable streams of revenue are a great way for nonprofits to meet their financial goals, rather than relying solely upon grants and donations.
Strong nonprofits have a strong and active Board of Directors. If the board is not involved, recruiting new board members who are engaged and want to be vital members of the team is essential to creating a viable financial plan. Board members can assist within their professional areas of expertise.
Monthly donations and selling products or services
Often all that is needed to generate more income is to look outside of the basic funding practices and find ways to sustain their gifts. Frequently, they can increase donations by implementing a monthly donor button on their site, as well as a service or product they can sell.
Setting up a paid training or workshop for others in the same field can generate some revenue and position a nonprofit as an expert resource in their field. Selling a product that is linked to a specific program can offset program costs if not grow and create additional revenue.
Social media presence
A comprehensive marketing campaign, including an active social media presence, is also a must-have for nonprofits these days. While your staff can learn to direct this crucial marketing arm of your program, look into hiring a professional to show you the ropes.
If you cannot afford it, you do not have to bring on someone full time. You can find freelancers to contribute part-time and/or help you set up a program that is easy to follow.
I don’t suggest using a crowdfunding platform for regular fundraising and rarely in emergent situations. Then only if you have an established marketing plan, donor base, and an emotionally compelling story.
Crowdfunding needs to work with your other basic fundraising programs as an addendum because, on average, only 22.3% of crowdfunding projects are fully funded. And out of the current (April 2019) projects followed by the Crowd Funding Center, only 2.5% are charities. This does not mean that it will not work for any given organization, but there are better ways.
Setting a nonprofit team up to grow and embrace change along with new thinking is the best way to make money. The most difficult thing to do is to change, but change is needed in order to grow. As nonprofit professionals, we do this work because we care, but we have to recognize that this is a business first.
Director of Marketing, Pinnacle Advisory Group, Inc.
If the NP is a Charity, a portion of the donations are funneled off to cover “operational expenses” – what that percentage is can often be a matter of some contention, but in the interest of transparency, there is a website that will report on how much a given public donation actually goes to the charities’ main recipients.
In the case of professional and trade organizations that are classified as non-profit, the range for income is broader.
Each organization charges its “members” an annual fee to be a member.
Most non-profits offer a range of products and services to members to enhance and evaluate their member experience.
Items on this list include but is not limited to books, pamphlets, white papers, research, promotional items and apparel, conferences and seminars, tradeshows, CE credits for professional certification, discounts on a range of services through the organization, like travel personal credit, business goods and services, insurance coverage, and other industry-related items and services specific to the industry they serve.
Partnerships and sponsorships
These are arranged with those who supply the industry the organization serves. For example, if you’re referencing the National Paper Suppliers Association, the sector that buys sponsorships, partnerships, advertising and the like includes pulp equipment manufacturers, trucking companies, paper roll suppliers, chemical manufacturers, warehouse facilities, pallet manufacturers, specialty hardware suppliers, machinery control software vendors, accounting and inventory management software purveyors, and others.
These are companies who need access to those members in order to sell their goods and services.
Other partnerships can include paid arrangements with universities and other institutions to produce industry research, act as information clearinghouses, and provide industry data for educational curriculums.
Advertising in industry Journals, exhibits at tradeshows, conference sponsorships and other paid arrangements also provide solid income streams for these organizations.
In a nutshell, they make money the same way everyone else does – selling things to a set of selected target audiences who have something in common.
Just because they’re not for profit, doesn’t mean they’re against it!
NPs make money all year long, some in excess of their expenditures, and the overage can be diverted into a number of different “buckets” legally.
One is into the reserves, kept tucked away for emergencies (dues shortfalls, facilities upgrades, special projects). Another might be a PAC or lobbying fund or war chest for lobbying for a specific issue affecting their industry.
Outdoor Educator & Outdoor Guide | Adjunct Instructor, Colorado Mountain College
In my previous career, I worked as a development officer for non-profit organizations. Although I have changed directions and moved into a different career path, I’m still involved in non-profit work by serving on boards of directors.
Non-profits receive their income primarily through fundraising
Some might have programs that they charge a fee or sell items and obtain income through these sources but that is typically minimal. Fundraising can take the form of individual donations (large and small), grants (corporate & government), events (gala’s & pledge-a-thons), and planned giving. Those are the basics but obviously, there are specific details in each of those categories.
There is no shortage of ways in which nonprofits make money. Since the establishment of the Revenue Act in 1954, there have been staple programs in place that still contribute huge sums of money to worthy causes to this day.
Whether they rely on planned giving, fundraising events, or in-kind contributions it is safe to say that savvy professionals in the philanthropic space have expanded upon countless traditional concepts to raise funds to aid those in need.
However, there are more charities today than ever before. In a society where it is increasingly cool to be kind and giving back is more commonplace than even nonprofits have to rethink their fundraising and innovate in order to survive and excel. From this competitive market, social enterprise has become a legitimate means for charities to make money.
Additionally, many of these social enterprises also serve to elevate and expand upon the services and effects that a cause can have on society.
In my vast experience, I have witnessed some very savvy initiatives in which existing nonprofits have been able to catapult their fundraising and elevate their visibility in the communities where they operate.
For instance, a smart organization with the appropriate resources might launch a public café
Open to everyone but staffed by their constituents. In some cases, offerings like this empower battered women to reestablish themselves while learning a new skill. Naturally, this restaurant atmosphere also then serves as a revenue source.
Another example could be that of a t-shirt printing business
With reasonable investment and creative design, homeless or disenfranchised youth might be put to work and all while branding the cause that is helping them to overcome their struggle.
A nonprofit need only to critically review its assets and resources and explore untapped opportunities that could serve to help the cause. By taking a business mindset to charity an organization can not only make more money but also teach new skills, promote their brand and further their reach, creating yet another way for society to participate in paying it forward by supporting a social enterprise effort.
Ben Watson, CPA
Profit vs. Nonprofit
A nonprofit’s main goal is to provide a good or service that is for the overall benefit of the public rather than the financial gain of the owner(s) (ie. for-profit businesses).
By collecting donations or selling goods and services, the margin of income over expenses are ultimately used for the specific purpose that the nonprofit was formed (ie. a community kitchen serves free food, a homeless shelter provides bedding and shelter, a religious organization provides counseling or financial aid).
The nonprofit often have expenses and administration costs associated with the endeavor so those working for it may take a salary or a wage, but the end goal remains the same.
Instead of focusing on how much money was earned and paid to the owner(s), the main financial focus is how much was received and given to it’s intended purpose.
How they make money
Donations, donations, donations
Without donations, many nonprofits would fail to continue operations. By accepting charity from those who believe in their cause, the organization can continue their work.
Fundraisers and silent auctions
By selling items at a markup, the nonprofit can use the gross revenue earned to fund their projects.
Often involving a tedious application process, grants are essentially donations with structured stipulations and accountability attached to its use.
Membership Strategist, The Next Steps, LLC
Too often nonprofit organizations garner the misperception that they are “no profit” organizations or not allowed to make a profit. This is far from the truth. Nonprofit businesses must make a profit to thrive and grow. It’s what they do with the profit that is different.
Nonprofit organizations invest the profits into developing new programs, products, and services to serve their constituents. Many times nonprofit organizations have a membership program to provide ongoing value to their followers in exchange for their financial support through a dues payment.
Membership dues payment
The membership dues payment is usually an annual payment that the organization spreads out over the following twelve months while providing exclusive relevant benefits and services to the members to keep them engaged with and informed about the topic or cause the organization has as its mission.
Annually the organization will ask members to continue their commitment to the organization’s mission by renewing their membership and remitting another dues payment. This cycle is repeated year after year and forms the foundation of an association’s business.
Membership recruitment and retention are the cornerstones of growing a membership program and the associated dues revenues to support the nonprofit organization’s operations.
Most associations rely heavily on dues revenues to survive and thrive. In most cases, it makes up the largest portion of the income of the organization. The remainder of revenues is brought in by non-dues revenue activities such as events and meetings, product sales, certification programs, professional development offerings, and other services that help constituents overcome the issues and challenges they face within their industry or profession.
The membership concept can be applied to almost any business and is an emerging business model among for-profits in recent years (e.g., Costco, Amazon Prime, Netflix, etc.) Membership programs help businesses develop consistency in their cash flow instead of relying on intermittent customer traffic to define their bottom line.
Operations Manager, My Trading Skills
Nonprofits are allowed to make money from activities related to their purpose of formation. If this happens, the amount earned is non-taxable, and it can be used to cover the operational expenses of the organization or for the benefit of the cause it is supporting. The profits cannot be distributed amongst directors, founders, etc of the organization
Some non-profits are able to make money by conducting business activities unrelated to their purpose. These earnings are usually taxable, and if a non-profit is engaging in too much of such activities, its tax-exempt status may be in jeopardy.
Bottom Line: Non-profits do make money in a variety of ways, but this money needs to be directed towards funding the purpose of the non-profit, and not for self-enrichment.