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How Do Non-Profits Make Money? (7 Smart Ways They Profit)

Non-profit organizations (NPOs) are establishments that make use of their excess revenue to pursue a cause that would be beneficial to the public or a particular group of people. In a nutshell, the overall goal of non-profit organizations is not to be successful in terms of wealth creation, but to be a success when it comes to giving value to the groups of people they direct their services or to the cause they choose to pursue.

It is worthy to note that non-profit organizations can decide to operate as a charity organization or service organization. This means that they may choose to be organized as a nonprofit corporation, a trust, a cooperative, or they may choose to exist informally in some cases.

For instance, an organization that is termed a supporting organization usually operates like a foundation, but such a structure might be somewhat complicated because it holds a more favorable tax status and are by law restricted about the public charities they can support.

The fact that an organization is considered to be non-profit does not in any way mean that the organization does not have the intention of making profits. As a matter of fact, most non-profit organizations have revenue generating ventures established for the sole purpose of supporting the organization (their cause).

Even though non-profit organizations are allowed by the law to run a profit-making venture, but there may be constraints to the extent to which they are able to generate revenue and even make use of the excess revenue being generated.

Interestingly, there are several not-for-profit organizations that have grown so big, so that the area which they cover is not just restricted to the location or country where they operate, but also to other parts of the world.

For example, one of the wealthiest non-profit organizations is found in the United States of America – The Bill and Melinda Gates Foundation, with an endowment fund of about US$38 billion that covers countries all over the world, not just the United States of America.

7 Smart Ways Non-Profits Organizations Make Money

Nonprofits are not driven by generating profit, but they must bring in enough income to pursue their social goals. Nonprofits are allowed to raise money in different ways. This includes income from donations from individual donors or foundations; sponsorship from corporations; government funding; programs, services, or merchandise sales; and investments et al.

  1. Individual Donors and Foundations

One of the major ways nonprofits organizations make money is from donations given by individual donors or foundations. For example, statistics show that charitable contributions to colleges and universities in the United States increased only 1.7 percent in 2016. $41 billion was raised for colleges and universities in 2016, up from $40.30 billion raised in 2015.

The truth is that though it may come in bits, but individual donations is a major source of income for a non-profit organization. As a matter of fact, in 2017, the largest source of charitable giving came from individuals at $281.86 billion, or 72 percent of total giving; followed by foundations ($58.28 billion/15 percent), bequests ($30.36 billion/8 percent), and corporations ($18.55 billion/5 percent).

  1. Sponsorship and Donations from Corporations

Another means that nonprofit organizations make money is from sponsorship from corporations. When a nonprofit organization comes up with a project or program that will be a win-win for both the community and the corporation, a deal is struck and the corporation sponsors the project or program.

When the residue income is generated, the nonprofit organization will have some money to run their own logistics and admin functions and even pay some of their full-time and volunteer workers.

As a matter of fact, statistics show that 90 percent of corporations indicated that partnering with reputable nonprofit organizations enhances their brand and 89 percent believe partnering leverages their ability to improve the community. For example, corporate giving to nonprofits in 2017 increased to $20.77 billion—an 8.0 percent increase from 2016, and it was bolstered by $405 million in contributions related to disaster relief.

Quick statistics on corporate sponsorship or giving to nonprofit companies;

  • 79 percent of companies reported increased donor participation rates and 73 percent raised more money.
  • 25 percent of corporate giving went to health and social services programs.
  • 15 percent of corporate giving went to the community and economic development programs.
  • Walmart leads the pack with $311.6 million in cash donations
  • 85 percent of companies in the US have a formal domestic corporate giving program in place vs. only 45 percent with a formal international program.
  1. Government Funding and Grants

Aside from sponsorship, support, and donations from corporate organizations, another major source of income for non-profit organizations is from government funding and grants. As a matter of fact, 80 cents of every dollar of nonprofit revenue in the United States comes from government grants or contracts and fees for services.

If you are interested in exploring this source of income, then you should contact your local or state Department of Health, Jobs and Family Services, Human Services, Department of Development, Small Business Development, Department of Education, Department of Transportation, County Commissioners, or City Councils. Ask about grants they have available.

  1. Services or Merchandise Sales

Both small and big nonprofit organizations make money from offering services or merchandise sales; they generate fees for goods sold and/ or services offered. Good enough, some of the products that are sold by nonprofit organizations are donated to them and the goods are sold at a highly discounted price compared to what is obtainable in the market.

Please note some nonprofit organizations can also produce their goods and then retail them in the open market. This is major means of making money and a host of people can volunteer to help you sell your products; 71 percent of parents said they’ve sold fundraising products to friends, family, and co-workers.

For example, statistics show that school groups raise more than $1.5 billion every year selling various products. Traditional product fundraising accounts for roughly 80 percent of the dollars that school groups use to provide “extras” for their schools.

  1. Interest from Investments

Nonprofits organizations are not exempted from making money by exploring every investment vehicle that is available to them. In order to stay afloat, while waiting for donations and grants, some nonprofit organizations reinvest the money they have been able to make into all available investment vehicles. So also they can make money via offering loans/program-related investments (PRIs).

Amongst the investment vehicles available to a nonprofit organization is the Mutual Funds. In simple terms, the Mutual funds is a pool of cash generated from various private investors with the same goal, interest, and investment philosophy, for the sole aim of investing in stocks, bonds, assets, other securities, and money market instruments.

The fund is managed by a professional fund manager on behalf of the investors. The good thing about mutual funds is that the investors are able to decide to sell their shares directly to the public just like every other company that is listed on the stock exchange.

  1. Bequests

Another major source of income for non-profit organizations is via bequests. A bequest is a financial term describing the act of giving assets such as property (estate), stocks, bonds, jewelry, and cash, to individuals or organizations, through the provisions of a will or an estate plan. Interestingly, a bequest can be given to a person, or it can be a charitable bequest to a nonprofit organization, trust, or foundation, and anyone can make a bequest—in any amount—to an individual or charity.

Although, a nonprofit organization may not receive bequests every day, but when it comes, it is usually large enough to last for a long time and they are tax-free – according to the IRS, gifts, inheritances, and bequests are generally not considered taxable income for recipients.

  1. Freewill Offerings and Membership Dues and Fees

Lastly, another means nonprofit organizations makes money is from freewill offerings and payment of membership dues and fees by members of the nonprofit organization. It is the norm for people of like minds to come together to form a nonprofit organization and then go ahead to contribute regularly to finance the nonprofit organization.

Churches and other religious organizations are classified as nonprofit organizations in the United States of America and in most countries of the world, and they make money by the donations and other forms of giving by their adherents and interested stakeholders.

Quick statistics on giving to churches in the United States of America;

  • Christians are giving at 2.5 percent of income; during the Great Depression, it was 3.3 percent.
  • Only 3-5 percent of Americans who give to their local church do so through regular tithing.
  • When surveyed, 17 percent of Americans state that they regularly tithe.
  • For families making $75k+, 1 percent of them gave at least 10 percent in tithing.
  • 3 out of 4 people who don’t go to church make donations to nonprofit organizations.
  • The average giving by adults who attend US Protestant churches is about $17 a week.

In Conclusion,

Please note that even though non-profit organizations are allowed by the law to run a profit making business venture, but there may be constraints to the extent to which they are able to generate excess revenue and even make use of the excess revenue being generated.