A Gift By Another Name: In-kind Income

Twice a year, Clothes to Kids, headquartered in Clearwater, Florida, provides thousands of low-income school-age children with five outfits. These school outfits include tops, bottoms, shoes, jackets, and accessories. Everything the children receive, except socks and underwear, is donated. Like Clothes-to-Kids, your organization may depend upon in-kind donations or it may involve only small but essential resources, like the volunteer labor of your board.

If you have been reading this series about nonprofit income sources, you may be surprised to find in-kind on a nonprofit income source list. After all, in-kind is not cash. Yet, its impact is huge. More importantly, looking at in-kind as a source can help your nonprofit to think differently. While money will work to solve your need, what you really need are the resources that money buys. Obtaining the right in-kind allows you to skip the cash step and obtain your need. (See the second equation below.) This article invites you to look at in-kind in fresh ways as a first step to maximizing it.

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Figure 1: Gifts of Money vs. In-kind

1. What is in-kind “income”?

In-kind is nonprofit jargon for gifts-in-kind. In-kind represents goods or services you receive for little or no cash. In some cases, in-kind includes resources you cannot buy, like the endorsement of a media star. All nonprofits receive this source of support, often in the form of donated goods, discounts, and services.

2. What are some other examples of nonprofits earning in-kind income?

  • In Florence, Kentucky, Faith Community Pharmacy’s budget is $3.2 million. It receives $2.9 million in in-kind.
  • Gary and Marguerite Lenfest gifted their 59-piece Pennsylvania Impressionist Collection to the James A. Michener Art Museum in Doylestown, Pennsylvania.

3. What forms of support does in-kind take?

In-kind donations take five forms:

  • Donation of Goods: Goods are given to you at no cost. This includes everything from food to office supplies to vehicles.
  • Time. This category includes all volunteers who donate hours that use their skills, but not their expertise. For example, a retired teacher sits at your front desk and directs visitors to their destinations.
  • Expertise. This is similar to the above, but it involves the volunteer’s expertise. In addition to the front desk, the teacher offers a computer class. An environmental engineer donates time at your site to advise you on how to handle your parking lot’s drainage problem.
  • Services. This type involves the use of equipment, space, and the like. A bank allows you the use of their boardroom for meetings. A restaurant provides their commercial kitchen once-per-quarter for you to make your famous spaghetti sauce.
  • Discounts. You receive services or products at a special or reduced price. Your printer donates the paper she provides to your organization for all print jobs. You receive a 25 percent courtesy discount because of your nonprofit status.

4. What about large sources of in-kind?

Good360 (formerly Gifts-in-kind International), Tech Soup, and the National Association for the Exchange of Industrial Resources represent several of the large international organizations developed to facilitate the exchange of in-kind goods. Tech Soup, for instance, provides nonprofits steep discounts on software. If your organization uses a lot of goods, check with these organizations.

5. Is this a common source of nonprofit income?

Yes; it represents one of seven sources of nonprofit income. (Read about the others here.) 

6. Besides the goods, services, and other help, what are the benefits of this source of support?

  • Save Cash. Your organization can save its difficult-to-obtain cash income for items like payroll taxes.
  • Entry Point. In-kind provides a great entry point for new donors who are often willing to participate by giving outgrown clothing or a buy-one-get-one peanut butter. Donors like the direct participation in-kind offers. For the savvy nonprofit, in-kind offers a point to begin longer-term relationships.
  • Environmental Good. For items that would otherwise fill landfills, in-kind helps the environment.
  • Not Available for Money. In-kind can provide access to resources that otherwise would be unaffordable or unavailable, including endorsements and expertise. Wouldn’t it be amazing if the Ad Council selected you for its next campaign?

7. What are the risks?

  • Misfit. You may receive items or services that are not the quality or quantity needed, such as winter clothing for disaster victims in the tropics.
  • “You get what you pay for.” This is true on two levels. First, in-kind does not always mean high quality or good-fit. Secondly, too often discounted or free means that a nonprofit fails to appropriately invest, which dooms projects, especially those involving expertise, to failure. 
  • Donor Confusion.  Donors believe they supported your cause with their donation and do not learn that cash is also needed.
  • Worth It? You spend more time collecting items than the value obtained. The truck sent to pick up items returns empty.

8. What is your organization’s experience with in-kind?

Leaders need to learn about their nonprofits’ experience with in-kind. Starter questions include:

  • Is in-kind a significant slice of your income pie?
  • What are the in-kind sources and amounts? How do you obtain them?
  • How much time do you spend obtaining it?
  • Are there other benefits that need consideration, such as community awareness and participation that collecting in-kind offers?
  • Is the income worth the effort and risk involved?
  • Are you handling any tax implications correctly?

9. What is the role of the board?

The board’s role here involves oversight and resourcing including issues like:

  • Identify Opportunities. Ask if you buy items that might readily be obtained via in-kind donations. Also, consider how you can help to create professional connections, invite new volunteers, and obtain one-time help, gifts, or discounts.
  • Not Free. All resources have costs associated with them. Donors need to know that their gift will be used and used well. Unappreciated volunteers find other places to help.
  • Dumpster Protection. Avoid waste; that is, items and services that will not be used. Even if the item will not go in the dumpster and you avoid dumping fees, storing that used sofa takes up space and has costs. Establish policies and guidelines about acceptance of gifts. See example gift acceptance policies on the Internet.
  • Proper Procedures. In-kind gifts have IRS and Canadian Revenue Service tax implications. Check with your accountant to learn how to fulfill them.

10. How might your nonprofit identify new sources of in-kind?

  • List needs.
  • Organize them into categories. Establish priorities.
  • Consider your connections or connections you might make.
  • Take action.

In-kind as an “Income” Source

In-kind gifts are a wonder of the nonprofit world. No other sector enjoys and can take advantage of them like nonprofits. To take full of advantage of your in-kind opportunities, focus on what you need, explore how to fill those needs, take actions, and set up barriers to keep unwanted items out.

For more on nonprofits and funding opportunities, listen to our collection of audio downloads, especially Money-tastic #2: Nonprofit Income Opportunities and Money-tastic #3: Creative Revenue Streams for Your Nonprofit. Both are great ways to learn new income ideas to help your nonprofit.