Q22 & Q23: Nonprofit Earned Revenue

I was also curious to know if nonprofit organizations were using their intellectual property assets to generate revenues through their own work as fee-for-service or other fees. At the time it seemed silly because fee-for-services represents about 80 cents of every dollar received by nonprofits. But, as that same article points out, that statistic is skewed by the tuition of educational institutions (a fee for service) and nonprofit healthcare bills. So, for organizations that aren’t large institutions, it turns out to be a relevant question.

This question is distinct from the licensing revenue question presented earlier because it is related to the direct operations and/or service delivery of the organization. The licensing of intellectual property is, generally, giving others the rights to use the intellectual property without asset owner involvement. All of the respondents were asked if the organization’s intellectual property is used to earn income via program fees, sales, or contracts to provide goods or services.

They shared:

• Eleven (11): Do use their intellectual property to earn revenue.
• Eight (8): Do not use their intellectual property to earn revenue.

The eleven earning revenue were then asked in what ways do they earn this revenue.

Seven (7) of the eleven (11) go about it using at least two of the three options. The other four (4) organizations rely exclusively on either Sales or Contracts to provide goods or services as the way they generate revenue from intellectual property.

Diving Deeper into Nuance: Why Earn Revenue?

I’ve encountered a lot of opinions on this question over my more than 20 years in the sector.

For some, it’s seems irrational not to try to earn revenue. “After all,” they usually say, “it’s not-for-profit NOT no profit.” These colleagues are making the point that nonprofit organizations are barred from distributing profits which is not the same thing as earning revenue to offset costs and reinvest in providing more mission-related public benefit.

Colleagues also point out that what is freely shared is not considered of value. I’ve seen this play out in how much a person values the services that are beneficial, and that they voluntarily seek, but without any “skin in the game” find easy to quit or not show up for. This leads to waste for nonprofits and underutilized overhead.

There are colleagues who say the purpose of the sector is corrupted by participating in the marketplace. On the extreme side of this position are the donors I’ve encountered who think fundraisers should work for free since we elected to work at a nonprofit. (I’m dead serious. To this day I cannot figure out if these folks are the extreme Ted “Not one penny for overhead” Turner types or coming at their position from a missionary mindset.) I can fundamentally agree that there are some activities and services provided by nonprofits that are morally and ethically wrong to charge a fee-for-service. However, I don’t think I can agree that nonprofits exist outside of a marketplace. Perhaps individual charity and mutual aid efforts do, and I’d love to hear perspectives on that front!

As I mentioned in an earlier post on this research, my professional experience had been that nonprofits generate a lot of intellectual capital, intellectual property, and value-added intellectual capital. I had also witnessed a range of practical and tactical management of those assets, which mostly fell on the more free-market side of the continuum.

But, there are also a very valid questions related to “Why Earn Revenue” that remains open to inquiry and has been subject to some great research by the academy, consultants, and nonprofits. Some key questions are:

• What drives a nonprofit to seek earned revenue?
• What is the right pricing mechanism for nonprofit goods and services – sliding scale, cost, cost-plus?
• Is earning revenue beneficial to nonprofit mission attainment?
• Are nonprofits that earn revenue for-profit firms in disguise?

This survey doesn’t begin to address why management is motivated to make certain strategic and tactical choices. However, my experience has been that there are a number of motivations for earning revenue like:

• There is an entrepreneurial skill or talent among the governance and management team.
• The organization creates something of value to the marketplace.
• The nonprofit supplier is trusted over a government or for-profit supplier for the same or nearly-same product or service.
• Revenue generation is one piece of a diverse revenue strategy to ensure that the organization can meet its public benefit mission.
• There is insufficient philanthropic resources to meet the demand of the client/public.
• The organization wants to optimize service provision with demand and minimize waste by incentivizing client commitment.

You can skip to the summary of all of the responses in the Social Entrepreneurs and Intellectual Property Management paper. Or, read through each of the blog posts tagged as Intellectual Property Data V1.0 for a more recent analysis of the data.