EARNED INCOME FOR THE
NONPROFIT SECTOR
Sonya Ulibarri // August 10, 2012
Earned Income


Earned Income: Income earned when there is a direct
exchange of product, services, or privilege for money.
Earned Income Strategy: An attempt by a nonprofit to
cover part of its costs by capitalizing on the earned
income potential of its programs, products, or services.
* Fact: Approximately 70% of the total income
generated by the nonprofit sector in the US
($1.4 trillion) comes through earned income
sources.
Two Types of Earned Income:
1.
2.
Related. Income is tax-exempt.
Unrelated. Liable for tax on income.
IRS criteria for defining a source as unrelated:

A trade or business.

Regularly carried on.

Not related to furthering the exempt
purpose of the organizations.
Social Enterprise

Social Enterprise: An organization or
venture (within an organization) that
advances a social mission through marketbased strategies. These strategies
include receiving earned income in direct
exchange for a product, service, or
privilege.
*Source: Social Enterprise Alliance
History of Social Enterprise in the US



Steady growth since the 1970s.
Most rapid growth: 1990s to early 2000s
(the # of social enterprises quadrupled)
Impact of the 2008 Recession still to be seen:




Recognized need to diversify resources.
Connection between sustainability and the ability to self
generate income.
Assets decreased, leaving less resources to invest in new
strategies.
Most organizations (75%) currently operating social
enterprises are planning to launch another.
Top Five Social Enterprises
The top five social enterprises operated by nonprofits
in the US are:
1.
2.
3.
4.
5.
Education and Training
Retail // Thrift Store
Consulting Services
Food Service // Catering
Arts Venue
Top Five Missions
The top five organizational missions operating social
enterprises in the US are:
1.
Workforce Development
2.
Housing
3.
Community & Economic Development
4.
Education
5.
Health
Social Enterprise Revenue
% of Revenue from Earned Income Sources
by Budget Size
70%
60%
50%
40%
30%
20%
10%
0%
$250k and under
$5M and over
Revenue Indicators
The largest indicator of amount of revenue generated
by nonprofit social enterprises is length of time the
venture has been operating.


80% of organizations who launched prior to 1970
earn on average more than $1 million dollars
annually.
80% of organizations who launched after 2000
earn less than $500k annually.
Capital for Social Enterprises
Top Sources of Capital for Social Enterprises:
1.
Foundations.
2.
Individual Donors.
3.
General Operating // Operating Reserves.
* Organizations report (surprise, surprise) that the
biggest challenge to launching and growing a social
enterprise is: funding.
Mission
Income
WHAT IS THE POTENTIAL & THE PRIORITIES OF YOUR SOCIAL ENTERPRISE?
Key Opportunities & Benefits
•
•
•
•
•
•
•
•
•
•
•
Double/Triple Bottom Line (people. planet. profit.)
Organizational Sustainability
Ability to leverage other funds
Leadership Development
Internal Investment
Public Awareness/Marketing
Outreach & Community Engagement
Business Savvy
Increased Capacity
New Allies
Professional Development
Key Challenges
Sales and Marketing
 Financial Issues
 Human Relations
 Operations
 Organizational Culture

* People won’t support the social enterprise solely for
mission. If it is both high quality and cost
competitive, the mission will be a deciding factor.
Group Identified Challenges
The following challenges/obstacles/threats were
identified by workshop participants:
•
•
•
•
•
•
•
•
Lack of Resources/Other Pressing Needs
Lack of Expertise
Shift of Power within Organization
Top-Down vs. Bottom-Up Approach
Change of Expectations
Requires Honest Conversations about Money
Transparency
Accountability: Traditional Constituents or New
“Customers”
Steps to Launching a Social Enterprise






Understanding Motivation (Income or Mission?)
Business Plan // Market Research
Identification of Start-Up Financing
Developing an Operational Plan
Outline Potential Scalability
Invest in Ongoing Training
Business // Impact Plan





Articulates Mission.
Establishes actions to achieve goals.
Outlines performance targets.
Projects resources, costs, and revenue.
Defines Strategy.
 Needs
of Target Population/Customers
 Market Conditions
 State of Industry
 Operating Environment
Questions to Ask
1.
2.
3.
4.
How does the organization balance mission and
profit and avoid mission-drift?
What are the potential challenges and threats to
the organization or venture over time?
What are the opportunities for growth, larger
impact, and long-term sustainability?
How will the organizational culture need to change
to support a new and different venture?
Resources
Social Enterprise Alliance
www.se-alliance.org