Can Nonprofits Sell Products? Here’s What You Should Know

As more nonprofit organizations look to stabilize, diversify, and expand their fundraising efforts, many are looking to additional options for support.  

One of the opportunities your organization may be exploring is selling products. But can a nonprofit sell products or services, and what issues should they be aware of?  

In this guide, we’ll discuss examples of nonprofits selling products and services and the opportunities available for your group. We’ll touch on tax ramifications and review financial and branding benefits. We’ll explore if selling products may be right for you.  

Can a Nonprofit Sell Merchandise or Services? 

Yes, nonprofit organizations can absolutely sell goods and services, provided they follow tax guidelines governing their type of organization and tax status.  

In the following sections, we will address how to handle this unrelated business income and to set your organization up for success.  

Examples of Nonprofits That Sell Products and Services 

Nonprofit organizations that sell products and services are not unique, nor are they rare.

Many nonprofits have discovered the value of setting up an ecommerce store for their organization. Some of the largest nonprofit organizations in the country sell goods and services and do so successfully. These nonprofits range from smaller local groups to large organizations. They are also diverse in their missions. Some examples include: 

• Scouting and Youth Groups 
• Hospitals 
• Health Research Organization 
• Colleges and Universities 
• Animal Rights Groups 
• Veterans Groups 
• Senior Organizations 

The reality is, selling goods and services is a powerful tool for a diverse selection of nonprofits. It can be a powerful and engaging tool for yours as well.  

Unrelated Business Income Tax and Other Regulations 

A nonprofit is an organization founded to affect changes in society. An application to the Internal Revenue Service must be made outlining the organization’s mission. When necessary criteria are met, the organization may be issued a tax-exempt status. This will dictate how income for the organization should be treated. Generally speaking, income must be reinvested in achieving the mission of the organization. 

In spite of a tax-exempt status from the IRS, organizations that sell products or services that are not related to their mission may have to deal with unrelated business income tax. This is generally regarded as non-dues related revenue. 

The key is keeping the products or services sold somehow connected to accomplishing the mission or goals of the organization. This can include help in branding the organization through promotional materials. This can help you avoid 501c3 violations. 

If a nonprofit organization generates more than $1,000 in gross income from products unrelated to its mission, it will need to file a Form 990-T. If the tax is expected to reach $500 or more in a year, the stimulated tax will also need to be paid.  

IRS publication 598 has a more detailed explanation of the rules and guidelines regarding unrelated business income and related taxes.  

Reporting Unrelated Business Income 

While the unrelated business income tax issue is certainly worth being aware of, it should not discourage you from pursuing this valuable income source. In the vast majority of instances, associating any products or services offered with the mission of an organization is not difficult.  

Reporting all income sources for a non-profit is not unlike a for-profit. A tax professional can help keep you in balance and in compliance with federal tax guidelines. 

Many third-party online merchandise providers will also be able to assist with any sales tax issues, minimizing sales tax issues you may have to face. 

Benefits of Selling Custom Merchandise for a Nonprofit

Most nonprofit organizations either have or are a building, a base of loyal supporters who believe in the mission of the NPO. This is a base that can be nurtured to support the organization at greater levels. One of these is demonstrating their support through custom merchandise. Here are just some of the benefits of engaging supporters through custom merchandise. 

Generate Income 

Almost every nonprofit organization is looking for ways to increase revenue generation without harming their other efforts. Revenue generated through custom products creates a whole new source of income, one that can be productive all year around.  

Increase Brand Awareness 

Not only can custom merchandise generate income, but it can also help with the branding and messaging of your organization and its mission. It can position your organization as progressive, caring, and active. Custom merchandise helps you carve out your niche and control your message. It can be important to recognize that nonprofit organizations compete daily for the hearts, minds, and financial support of consumers. Custom merchandise can help you compete.  

Provide an Outlet for Supporters 

Successful organizations frequently have a core of passionate supporters and ambassadors. They can range from staff members and volunteers to board members and member donors. Custom merchandise allows them to demonstrate their support and share your message.  

Where to Sell Nonprofit Merchandise 

Another positive aspect of selling custom merchandise for nonprofit organizations is that vehicles for sales are numerous. They also don’t take many special sales skills. Some of these places to sell include: 

Online and e-Commerce Sites 

Merchandise can be shown and sold through a number of nonprofit ecommerce websites. NPOs can use sites like Etsy and Ebay, create their own nonprofit ecommerce site, or use a variety of platforms designed specifically to help nonprofits generate sales. 

Events 

Selling at community events is a great way to generate income while increasing visibility and building your brand. You may even gain a few new supporters and volunteers along the way.  

Peer-to-Peer  

Getting supporters to sell to their own personal network is a terrific way to fuel the sale of custom merchandise for nonprofits.  

There may be no better example of this than the Girl Scouts. The Girl Scouts sell over 200 million boxes of cookies each year. It is worth noting that the scouts started selling cookies just five years after the organization was started in 1912. Many of the sales are generated one-on-one, or peer-to-peer, to family and friends.  

Nonprofit Product Ideas 

Keep in mind, it can be beneficial for organizations to sell products that tie in with their mission. Here are some product ideas NPOs may consider: 

Environmental Groups 

Reusable water bottles and merchandise made of recycled materials can help promote the planet-friendly mission of environmental groups. Energy-efficient light bulbs may also be a good idea. 

Veteran Organizations 

Any items sporting the American flag, red, white, and blue colors, or the American Eagle are a natural tie-in for veteran groups.  

Animal Rights Groups 

Pet calendars, treats, and pet care books work well for pet friendly NPOs. Doggie t-shirts can also be a hit and generate merchandise sales. 

Senior Organizations 

Nonprofits that provide support for senior citizens can sell day-of-the-week pill cases, auto emergency kits, first aid kits, greeting cards, and more. Other customizable and useful items could include page magnifiers, a password organizer, and others. 

Schools 

Students of all ages appreciate custom printed t-shirts, window stickers, ball caps, stocking caps, and organizers. 

Medical Facilities/Hospitals 

Items that promote good health and fitness are a nice tie-in for medical clinics to sell to generate funds and brand themselves. Items could include golf balls, suntan lotion, visors, sweat bands, first aid kits, and more. Customized golf or t-shirts are also popular. 

Civic/Community Groups 

There is an almost endless list of customizable items that can be used to promote community pride or a specific cause. T-shirts, hats, car magnets, car flags, yard signs, and more are all options.  

Use Caution Creativity 

Selecting the right items to sell can take some cautious creativity. Your organization should first decide on the image it wants to project. 

Do you want to be viewed as solid, conservative, and stoic, or whimsical, fun, and more lighthearted? Do you want to stay in your lane or push creative boundaries? 

Explore products offered by other organizations and do some brainstorming. Explore your options and decide what products will help take you to where you want to go. 

Final Thoughts 

Custom items can be valuable to have in stock for use at promotions, events, and fundraisers. There are, however, options for custom items for organizations who don’t have the funds or space to store inventory. These NPOs may want to explore custom printing companies that sell custom items directly to consumers while paying the organization a commission. 

The bottom line is that not only is selling merchandise allowed for a nonprofit, but it can also be a terrific way to generate funds, build your brand, and allow your biggest fans to show their support.  Thousands of nonprofits operate online stores with WildApricot. Sign up for a free trial today!