How do Nonprofits Make Money?
Ever thought about how nonprofits can make money to support everyone and even actually make a profit? Yes, you heard that right, nonprofits can make a profit and most do achieve that. So, what's the meaning of a nonprofit organization?
Nonprofit organization - A non-profit organization is a group organized for purposes other than generating a profit and in which no part of the organization's income is distributed to its members, directors, or officers.
Defined by Cornell Law
This is a simple understanding of how nonprofits work. Let's dive in to learn more about how nonprofits make money.
Ways Nonprofit organizations make money
Donations
Grants
Memberships
Selling their products
Donations are the main source of revenue for nonprofit organizations.
Nonprofits can also receive grants which are usually given by a foundation, corporation, or government agency. Grants are not easily given, the nonprofit must have a clear plan and execute to show that they need money to expand their services.
Memberships are also a great contribution because the nonprofit insures money for continued use. The nonprofit can offer benefits to members to make them more willing to join their program. They could also tier the memberships so they get paid more for different memberships.
Nothing is stopping nonprofits from selling their products. They can create their own website and sell shirts to pass around the word, but in fact they both market and make a profit. So, non-profits can make a profit like a normal business, but they market their products to have people wear the shirt so more people support their nonprofit.
How are Nonprofit Profits Used?
Profits earned by nonprofits are not distributed to the founders (nonprofits don't have owners). The net income must be used to help advance the nonprofit. So, this doesn't compensate the founders for their great service but encourages them to invest more in their nonprofit.
Profits can be used for
Functional expenses
Employee salaries
Fundraising set-up
Supplies
Marketing
General expenses
Cash Reserve
The three main categories of spending are programs, fundraising, and administrative.
Non-Profit Spending Pattern
To conclude, the profits are first used to continue operations, not fund the founders.
How do Nonprofit Founders Make Money?
Founders can make money by setting themselves a fixed reasonable wage. That's the only way founders can make money directly from the nonprofit.
To set a salary for the founder, the founder must be given a job title to then be compensated for their "work". Leadership roles are preferred because they get paid the most and you are the founder after all.
The highest position you can receive is CEO. Don't think they don't make much because they work at a nonprofit. CEOs at non-profits can earn millions of dollars per year.
Top 10 Highest-Paid Nonprofit CEOs in 2022
1. Ernie Sadau
Organization: CHRISTUS Health
Amount: $13,463,390
2. R Heldebrant
Organization: Star One Credit Union
Amount: $12,465,866
3. Steven J. Corwin
Organization: NewYork Presbyterian Hospital
Amount: $12,414,295
4. Peter S. Fine Fache
Organization: Banner Health
Amount: $11,256,938
5. Jack N Gerard
Organization: American Petroleum Institute
Amount: $10,669,493
6. Anthony R Tersigni
Organization: Ascension Health
Amount: $10,631,627
7. Teresa Campbell
Organization: San Diego County Credit Union
Amount: $9,946,020
8. James D. Dahling
Organization: Children's Hospital of the King's Daughter
Amount: $8,917,055
9. David C Pate
Organization: Saint Luke's Health System
Amount: $8,564,141
10. Howard P Kern
Organization: Sentara Healthcare
Amount: $8,053,745
How are Nonprofit employees paid?
As said before for how nonprofit founders were paid, employees are paid the same. They have a set wage and earn bonuses or get paid for extra time. Nonprofit employees are paid just like any other employees. So, if you want to work at one, you won't miss out on the benefits that other companies have to offer.
Top Nonprofit Companies By Revenue
Fidelity Investments Charitable Gift Fund
Revenue: $10,031,882,956
Assets: $27,028,513,842
Partners Pooled Investment Holdings LLC
Revenue: $9,476,124,609
Assets: $9,412,249,609
Bill & Melinda Gates Foundation
Revenue: $5,607,122,529
Assets: $47,850,466,255
Battelle Memorial Institute
Revenue: $5,087,879,187
Assets: $1,094,142,717
The Global Fund
Revenue: $4,056,010,831
Assets: $12,710,000,000
Schwab Charitable Fund
Revenue: $3,465,939,041
Assets: $10,634,353,155
National Philanthropic Trust
Revenue: $2,946,578,916
Assets: $16,475,852,379
Conclusion
Nonprofits do earn a profit, but that's not a reason to start one. If you start one just to make a profit then you won't fight for a cause to change the world. Why wouldn't you just start a business to make money? Nonprofits aren't easy to start either. More than 90% of nonprofits fail within 5 years. You're relying on other people for money after all, so it's not easy to secure funding. After you've gone through the startup phase and have become more mature, then you can better spread the money and pay yourself more.