Balancing Purpose, People, and Profit Part I - A Look at the Need for Revenue in Nonprofits
Note: Whether you are a consumer OR involved in a nonprofit organization, this article examines why revenue and profit or surplus is a healthy balance to people and purpose.
Capitalism says: freely and competitively, pursue profit privately at all costs.
Socialism says: control equal distribution of wealth and co-operate instead of compete.
Now, let’s leave the debate of economics and political science aside and simply look at common attitudes towards privately owned companies and nonprofits (also known as publicly or community funded organizations).
We tend to accept that private businesses are driven by pricing and profit, and yet consumers seem to have a misconception that nonprofit organizations should not profit. And this is why so many of these organizations are struggling.
Nonprofits still have to operate within a market economy, which is characterized by private ownership, voluntary exchange of goods and services, and competition. However, nonprofits themselves do not fit neatly into traditional economic system classifications such as capitalism or socialism because their primary objective is not simply profit maximization or government control.
Should nonprofits profit? Absolutely.
They operate within the market economy but with a different focus and set of principles. It’s important to note that while they need to generate revenue, the primary purpose of that revenue is to sustain and grow their organization. Profit, or surplus, funds are reinvested in pursuit of their mission rather than being distributed to owners or shareholders.
Nonprofit organizations need to generate revenue to sustain their operations and fulfill their mission. The key distinction here is that nonprofits are not primarily driven by the goal of making a profit for distribution to owners or shareholders. Instead, any surplus or revenue generated by a nonprofit is reinvested back into the organization to support its programs, services, and activities.
We need to dispel the myth that nonprofits need to operate with a deficit. Operation costs need to be covered, and surplus from revenue can be redistributed to drive the mission. Examples of well governed surplus look like: job creation, program development and delivery, increased accessibility to services, and even bricks and mortar expansion to increase capacity to serve the community.
How do Nonprofits generate revenue?
Goods and services: Nonprofits can develop and sell products that align with their mission. For instance, an environmental conservation organization may sell eco-friendly merchandise or a nonprofit supporting artisans may sell handmade crafts. Nonprofits can offer various services related to their mission for a fee. For example, educational nonprofits can provide training programs, workshops, or consulting services. Healthcare nonprofits may offer medical services or counselling.
Donations: Many nonprofits rely on individual and corporate donations from supporters who believe in their mission and want to contribute financially.
Grants: Nonprofits often apply for grants from government agencies, foundations, and other organizations that provide funding for specific projects or programs.
Fundraising events: Nonprofits frequently organize fundraising events such as galas, auctions, charity runs, or crowdfunding campaigns to raise funds for their initiatives.
Membership fees: Some nonprofits offer membership programs where individuals pay a fee to join and receive certain benefits or privileges.
Program fees: Nonprofits may charge fees for specific services or programs they provide, such as educational courses, workshops, or consulting services.
Sponsorships and partnerships: Nonprofits can seek corporate sponsorships and form partnerships with businesses that align with their mission. These relationships often involve financial support in exchange for promotional opportunities or other benefits.
Balancing Purpose, People and Profit.
Nonprofits often operate alongside both for-profit businesses and government entities, forming a vital part of what is sometimes referred to as the "third sector" or the "nonprofit sector." This sector encompasses a wide range of organizations that operate outside the realms of pure market dynamics or government control, serving the public interest in various ways. When governed effectively, these mission driven organizations truly balance purpose, people and profit. Let’s put our money to work in these organizations.
