In the past, it was only for-profits in the private sector who would talk about improving and optimizing “earned income” and “revenue generated.” Nonprofits face the ongoing challenge of increasing their financial independence—without sacrificing their mission or reducing their credibility—but there has always been a certain stigma attached to “earning” money, as opposed to grants or donations.
However, in recent years, the for-profit and social sectors have moved closer together: While businesses focus more on stakeholders and shared value, nonprofits are coming under increased pressure to create and strengthen their revenue opportunities. In the face of growing competition, professionalization around more transparency and accountability, and the “commodification” of social “markets,” earned income not only allows for more reliable and diversified revenue streams, but it ensures the continuity and sustainable growth which is crucial to mission support.
As a first step in moving from donations and grants toward more sustainable and recurring revenues, memberships are a great tool to strengthen loyalty among supporters and to increase earned income for sustainable recurring growth. There is already a shift to recurring revenues underway in the for-profit sector, and Gartner predicts that by 2023, 75 percent of organizations selling direct to consumers will offer subscription services. Recurring revenues can be more predictable, stable, and reliable than a business model based on one-time sales. For example, Apple‘s software and service offerings have come to be much more important for its business today than its device sales: In the fiscal year 2019, Apple's services business posted gross margins of 63.7 percent, approaching double the 32.2 percent gross margin of the company's product sector. And while it may seem that measuring a nonprofit against the tech giant is like comparing, well, apples and oranges, recurring revenue is one area where the social sector should definitely take note and improve.
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