By: Stephen Cox, CPA

Financial sustainability is the key to any organization’s long-term stability and ability to serve its constituents. non-profit organizations face sustainability issues more often than for-profit companies because their primary revenue sources stem from donations.

A diversified revenue stream can reduce financial stress during times of economic decline by relying on more than government contracts and donor pools. Alternative revenue sources provide the diversification to create a more stable organization.

Building and Land Rental
The first place to look for revenue opportunities is within your building. Many non-profits derive earned income from renting out excess building space and land to the surrounding community. Some options for your excess space.

  • Office space and workstations
  • Conference rooms for corporate meetings
  • Celebration areas to individuals and businesses
  • Galleries for local, regional, or national artists

Renting out excess space in the organization is a great way to generate revenue with the facilities already in place. Of course, some expenses may need to be made to bring in potential renters such as new furniture, advertising, and remodeling. Doing a cost-benefit analysis of the project can give you a better idea of whether or not rental income is a good route for your business.

Fee-for-Service Programs
non-profits are generally filled with employees that believe in a cause, and fee-for-service programs can provide value to constituents and the community while raising revenue.

There are three main types of fee-for-service programs that can be implemented:

1. Mandatory Fees

  • A fixed fee charged based on various criteria
  • Fee must be below For-Profit rate for similar service

2. Voluntary Donations

3. Requested Fees

  • Inform clients of costs and request a contribution
  • Optional donation to supplement cost, not a mandated fee
  • Membership Programs
  • Lump sum membership fee for free or discounted services

A hybrid of multiple models may be implemented to provide the best service to clients if one of the above models does not work for your organization However, there are potential conflicts that need to be considered before you implement any fee-for-service programs.

Possible Fee-For-Service Programs Conflicts
The three primary conflicts occur with concurrent grants, segmentation, pricing, and legal and tax implications.

    1. Some federal grants include rules and regulations prohibiting the use of federal funds to create these programs.
    2. Segmenting your client market is also vital to understanding whether or not these programs will draw in donations and participants. They can be created by dividing your client base by a specific characteristic, such as income level, which can help you optimize the way you use a specific fee-for-service model.
  1. The price of each program will affect the number and amount of donations clients feel they should contribute (except mandatory programs). A key to having a successful fee-for-service program is breaking even.
  2. Many fee-for-service programs are subject to unrelated business income tax (UBIT). Fees not associated with the organization’s mission are considered unrelated business income. Fees must also be completely voluntary. Any sort of coercion can drive away clients or result in legal complications.

Evaluate Your Alternate Revenue Stream Options
Before pursuing any alternative revenue sources, a non-profit organization must evaluate their options and find the best fit for their mission. Providing expertise from the organization’s mission and goals is one of the best ways to provide additional value to clients. It’s best to consult legal and tax advisors before pursuing alternative revenue sources to avoid any potential conflicts