The Ultimate Guide on How to Generate Earned Income for Your Nonprofit

Most organizations find funding their nonprofit to be an uphill battle.

Amid rising grant competition and unpredictable donor support, many nonprofits are choosing to challenge the status quo. With a proactive approach, these organizations are creating new earned income strategies to tackle their funding challenges.

Yes, they are actually generating revenue to fuel their mission. What’s more, they are using their earned income streams to deepen their impact. This forward-thinking trend is sweeping the nonprofit realm, putting organizations in the driver seat like never before.

In this post, we’ll cover five ways nonprofit organizations generate earned income plus a shortcut on how to find successful sources of revenue for your nonprofit.

But first, let’s go over the basics.

What is Earned Income

Earned income for nonprofits is any revenue generated from activities, products or services related to your mission. This does not include donations or grants. Some examples would be:

• Selling products like merchandise
• Fees for a service like an educational course or workshop
• Membership dues
• Income from renting out office or venue space
• Ticket sales for events, performances or conferences

Keep in mind nonprofit earned income can be taxable and there are a rules and regulations for accepting this type of revenue and maintaining 501(c)3 status.

Related and Unrelated Income

The majority of your nonprofit earned income must be related income to avoid taxation, as there are limits on how much unrelated income your nonprofit can receive. Related earned income is generated from revenue sources that align with the organization’s mission. Unrelated business income (UBI) is revenue not tied directly back to your mission.

When considering whether this income is related or unrelated, ask yourself how it impacts your nonprofit’s mission. One of the tricky ones can be renting our your nonprofit’s spaces. For example, if you are a church and you rent out your recreational space to a local club for a dodgeball competition, this isn’t related to your mission, thus it is UBI. However, if that space was rented out to a local women’s group for a bible study, that would be considered related income.

IRS Rules for Earned Income

The IRS has rules and implications for a nonprofit organization’s earned income, specifically on how much can be unrelated business income.

Here’s a few quick rules to keep in mind:

• Your nonprofit can make up to $1,000 of unrelated income
• If you make more than $1,000 of UBI, you must file form 990-T
• Making too much UBI can jeopardize your 501(c)3 and tax exempt status

The Balance dives more into this topic in their post, “How Much Unrelated Earned Income May a Nonprofit Receive?” Additionally, the IRS classifies unrelated income tax here and the tax exemptions and exclusions here.

Ultimately, we recommend that organizations implementing earned revenue streams should connect with their accountant to ensure they don’t jeopardize their 501(c)3 status.

Benefits of Earned Income for Nonprofits.

Earned income for nonprofits, even with it’s tax-related caveats, is very beneficial. By diversifying your revenue stream you’ll enhance your nonprofit’s resilience and boost the impact your can make on your community.

Financial Stability

Many earned income ventures become a reliable income stream for your nonprofit. Donations are not always guaranteed and can be seasonal, impacting your budget during off-season. By offering other ways to support your mission and build funds, you’ll have a stable financial foundation, allowing you to invest more in your goals.

Community Engagement

An earned revenue model where you offer products or services can deepen relationships with the community and raise awareness about your nonprofit’s mission. Having merchandise with your nonprofit’s name all about town will bring more attention to your organization, potentially increasing support! If your nonprofit offers services like educational workshops, you’ll be helping out those in your community as well as building earned income.

Donor Confidence

A strong earned income strategy shows your regular donors that you have solid financial health and sustainability. Knowing that your nonprofit has the funds to actually achieve the goals you set our to do, will boost donor confidence and in turn, their support (both as an advocate and through financial means!)

Flexibility

Flexibility comes in two parts as a benefit of nonprofit earned income. You have the flexibility for your nonprofit’s initiatives and the flexibility for your supporters.

Having a reliable income stream allows your organization to allocate resources more strategically and invest in new activities that achieve your mission.

Providing more opportunities to contribute allows supporters to choose how they help. Perhaps a donor doesn’t want to give money, but they would like to purchase a ticket to your upcoming educational seminar.

Capacity Building

Engaging in earned income activities will allow your nonprofit to build skills in marketing, sales and management. For example, if your strengths have previously been in gaining donations exclusively, introducing the idea of rental space management allows your nonprofit to learn how to manage a venue, create contracts between groups and builds relationships with your community. Bringing some variety to your nonprofit’s revenue opportunities will strengthen your overall organizational capacity.

 How to Generate Earned Income for Your Nonprofit

Now that we’ve covered the basics, let’s dive into some real ways you can build earned income!

1) License Technology or Intellectual Property

Does your organization have a secret sauce that separates it from the pack? Perhaps you have a shortcut or a process that streamlines success, or maybe you’ve even built a system or app that you could license?

If this sounds like your nonprofit, consider opportunities to license it out to other cities, states or nonprofits. While this does require being technologically savvy, it’s great source of income based off your special skills.

A good example of this is the Fresh Food Connect app created by Denver Food Rescue.

Their mission is to provide health equity to Denver neighborhoods by connecting gardeners with excess produce to food insecure communities throughout the city. Their app makes it easier for their volunteers to schedule produce pickups and deliveries.

The earned income comes from licensing out the app to other venues. By charging a nominal licensing fee, it covers the technology maintenance costs, essentially creating a self-funding and sustainable software program.

2) Consult or Facilitate Trainings

Leveraging your consulting or training services is one of the least time and cost-prohibitive ways to generate nonprofit earned income. That’s because it’s easier to simply package your know-how rather than to create something from scratch (like an app, or a new service).

All you need to do is offer consulting services or training seminars on something your nonprofit is an expert in. Charge for tickets, a flat fee or an hourly rate to build revenue – just make sure it covers any costs (like staff time, space rentals or materials you may provide).

An example of this is Seaside Sustainability’s consulting program. Their mission is to provide environmental and STEM programs that encourage members of the community to build and nurture a relationship with local land and seascapes.

By charging for their consulting services, Seaside Sustainability provides professional assistance to support school-wide environmental behavioral changes, teaches best practices of greening their institutional behaviors, helps to manage and develop projects and evaluating their campus level of sustainability.

3) Sell Products or Offer Services

Perhaps the simplest approach comes in the form of selling products or offering services. After all, it’s practically the first form of business created. Similar to the  consulting and training services we mentioned above, you can sell products and services based off your nonprofit’s mission.

One of the easiest ways to do this is through selling merchandise, like t-shirts or mugs. If your nonprofit has a special skillset, you can offer this as a service to others for a fee, like painting murals.

Bikes Together, an organization addressing community wellness and education by increasing access to bicycles, is an example of a nonprofit that does both.

To supplement their programs that gives away bikes, they sell refurbished bikes and bike parts to the public. They also offer services to fix your bike, or you can learn how to fix your bike yourself through their quick learn and repair sessions or 4-part mechanic series. These programs have built revenue for the organization and helped their community develop crucial life skills.

4) Rent Out Space

Physical space is a commodity and not all nonprofits will have their own, especially with the high cost of rent. But if your nonprofit has a physical space, like an office building, you can use this for your revenue strategy.

If you have an extra office you don’t use regularly, conference room, multipurpose space or even a gymnasium, rent it out to build revenue. A common occurrence of this is churches. Since their space is mostly used on Sunday’s they’ll rent out space for events (like weddings), meetings and classes.

A unique example of this is the Alliance Center. They focus on sustainability and one key aspect of their model is curating partnerships through shared spaces.

They build income for their mission by providing co-working space for impact organizations and nonprofits. Each of these organizations pays monthly rent based on the amount of space they use. Once a member, these organizations also get access to the community and partnerships that the Alliance Center is fostering. They also rent out their conference rooms both to members and to the public.

5) Develop a Social Enterprise

Did you know nonprofits can own a Limited Liability Company (LLC)? Well they can, and it can be a source of income for yours! This can be done through developing a social enterprise. Your nonprofit will have financial stability and address a basic unmet need in your community or solve a social problem

In short, you create a business that achieves a social or positive mission. Social enterprises have the heart of a nonprofit but deploy tools from the for-profit world. This is the most involved endeavor, so consider carefully before embarking on this path.

A social enterprise can help bypass some of the roadblocks from related and unrelated income, as well as give you more flexibility in growing the enterprise.

An example of a nonprofit that has done this successfully is Focus Points, a family resource committed to serving low-income families.

Their Director of Economic and Workforce Development realized that she would better serve her constituents by creating a job-training program that also paid them. With that, she built the Comal Heritage Food Incubator. It’s a separate entity, but owned by Focus Points, making it a social enterprise rather than just a business. This restaurant and training program provides culinary skills, business training and a regular pay check through serving up scrumptious dishes to patrons.

A Shortcut to Identifying Potential in Your Organization

The best place to start to develop potential earned incomes streams is examining your organization through a slightly different lens. It’s time to step out of the box and away from your day-to-day.

Here are a few questions to get you pointed in the right direction:

• What are potential gaps in your service or organization? What barriers are your customers, members, or beneficiaries running into?
• What is your unfair advantage (i.e., what does your organization do better than other organizations)?
• What are things in your organization that have value (e.g., intellectual property, curriculum, assets, systems, physical space)?

Starting with these questions will put you on the path to identifying opportunities for nonprofit earned income.