Do you recognize The Sound of Music lyrics? Maria sings them to Captain von Trapp’s seven children. By starting with the basics, over time, the von Trapp family became famous for their music.
To create sustainable nonprofit income and –maybe be famous for it– start at the beginning.
Below are the seven basic nonprofit income “notes” designed as a quiz to take and share with your staff, board, and volunteers to correct common misunderstandings about nonprofit revenue. A scoring tool follows.
1. What are the two types of nonprofit income?
DO: Donated and Earned. As a sector, nonprofits earn 60 percent of their income. Forty percent of it is donated. Therefore, if you are an average nonprofit, out of $100, you receive $60 will be from customers and $40 from donors.
2. What are the seven sources of nonprofit income?
RE: Based on who provides the money to your nonprofit, the seven sources of nonprofit income are: 1) mission earned, provided by customers, 2) individual donations, 3) governments, 4) foundations and grant-giving entities, 5) corporations who act as both donors and customers, 6) other income provided by customers not related to your mission, and 7) in-kind donations. Each source is explored in-depth in, 7 Nonprofit Income Streams.
MI: Nonprofits make most of their cash income from three sources:
a. Mission Earned: This is earned income related to the nonprofit’s mission. It includes rent received from clients, theater tickets, and tuition.
b. Individual Donations: This is donated income from individuals and families. Donations include everything from dollars given online to bequests in wills.
c. Government. This earned income includes public funding from municipalities, states, provinces, the federal government, and other entities. If you compete and win a grant from your state, you will receive government income.
If you guessed that in-kind was one of these three, take credit. While not cash, in-kind donations are huge. For instance, volunteers give around 15 billion hours of time a year. Sector-wide, their value may exceed any of the top three sources.
FA: The first is grants from foundations and other grant-giving entities. One example is a grant from your community foundation. The second is corporate income, such as a donation you receive from a bank. It includes the bank giving you money to purchase an ad in your newsletter.
Together, sector-wide, foundation, and corporate income equal less than 10 percent of all nonprofit income. Most people believe these sources have huge potential to solve nonprofit income challenges.
The last type of income is unrelated income. Nonprofits earn this type of income without moving their mission forward as they earn it. Examples include the interest your investment firm makes on your endowment and the rent you receive from onsite weddings. It equals about 10 percent of the sector’s income.
SO: False; obtaining consistent income requires disciplined, hard work, and marketing to obtain income, not only quality mission fulfillment.
Excellent mission work does not by itself guarantee income. Too many wonderful nonprofits are underfunded and hoping to be recognized financially for their contributions. Nonprofits obtain adequate income when they harness their power and interact with their people and provide value to them.
LA: Each nonprofit must discover its own path. To succeed, you do not need to obtain income from all seven sources. However, so that you don’t miss opportunities, it’s wise to understand the sources.
Nonprofits in similar genres tend to obtain their income in like ways. Therefore, theaters tend to earn income from the same sources as other theaters and food banks like other food banks. To find your path, explore successful nonprofits in your field and adapt–not copy–their success to your situation.
TI: False. You can’t hire a development director to handle donations. Nor can a CEO handle it. Both positions can help organize and support the nonprofit’s donation efforts. Significant donated income requires an organization-wide effort to identify and encourage friends and donors to be involved in the nonprofit because of the value it provides in their lives. At its heart, donated income involves partnerships where everyone donates and encourages others to join them.
6-7: You’re well on your way to obtaining the income you need. Continue to educate your supporters.
3-5: You have a good start. Build on it. Remind people of the basics. Then, introduce more in-depth knowledge about income sources that are critical to your nonprofit.
0-2: Invest in learning the nonprofit income basics.
While nonprofit income is not nuclear engineering, it is professional, nuanced, and researched. Too few people understand it. To succeed in obtaining nonprofit income, first, educate everyone. Start with the basics, and soon everyone will be in tune with where you need to go.
For the next 30 days, begin every meeting at your nonprofit with the quiz.
For more answers, explore Karen’s Nonprofit CEO Library.
And sign up for Karen’s CEO Solutions for answers delivered to your inbox two times a month.
Karen Eber Davis provides customized advising and coaching around nonprofit strategy and board development. People leaders hire her to bring clarity to sticky situations, break through barriers that seem insurmountable, and align people for better futures. She is the author of 7 Nonprofit Income Streams and Let's Raise Nonprofit Millions Together.
If you appreciate these Added Value posts, please consider subscribing.