By: Shelly Schnupp
Nonprofit organizations should work hard to secure as many revenue sources as possible….right?
The answer is, not necessarily! While this principle has been tossed around for decades, research shows that nonprofits should seek the RIGHT revenue to carry out their missions; and not all sources are right for all nonprofits.
Dennis Young, my favorite nonprofit scholar, has been studying nonprofit revenue for many years. Young recently visited Milwaukee thanks to the Helen Bader Institute for Nonprofit Management at UWM. Young described how “benefits theory” explains why certain nonprofits attract certain revenue streams, and how the same theory can be used to determine sources of support that work for an individual nonprofit.
Professor Young made a number of important points at the Milwaukee event:
- There is no standard formula or no one pattern for financing a nonprofit’s work. What applies to one organization does not automatically transfer to another.
- The more revenue diversity, the greater the capacity required to manage it. Therefore, nonprofits should choose revenue streams wisely.
- The financing of a nonprofit organization is driven by its mission which determines the nature of the services it provides, the (various) groups of people it benefits, and the manner in which beneficiaries (or their advocates or proxies) can provide income support for the benefits they receive.
Benefits theory helps explain the highly diverse patterns of nonprofit income. More importantly, it can help nonprofits determine the “right revenue” by:
- examining the benefits and beneficiaries of the services they provide or are capable of providing, within the scopes of their missions,
- appealing to previously untapped beneficiary groups,
- searching for alternative streams including government, contributions, and fee revenue, compatible with the nature of benefits provided, and
- exploiting special competencies or capacities that provide a competitive advantage for profitably serving new beneficiary groups consistent with mission.
Certainly, some nonprofits’ approaches to building revenue reflect Young’s benefits theory. After all, examination of existing nonprofit revenue portfolios is what lead to the development of benefits theory. The beauty of this simple theory is in how nonprofits can use it to ensure they are tapping into all of the right resources. Applying the principles of benefits theory, systematically and intentionally, can prevent nonprofits from wasting efforts on chasing the wrong revenue while keeping them, as Young would say, from “leaving money on the table.”
Spectrum Nonprofit Services is developing tools that will assist nonprofits in evaluating their revenue strategy. Stay tuned.
Dennis R. Young is Emeritus Professor at Georgia State University. His most recent publication is Financing Nonprofits and Other Social Enterprises: A Benefits Approach, 2017. He previously edited Financing Nonprofits: Putting Theory into Practice published in 2006. Both publications describe aspects of “benefits theory.”