Should your nonprofit sell t-shirts or other products to raise money?
The pressure to raise more money and "do more good" has never been higher for nonprofits. COVID-19 has left the world reeling from its devastating effects, from job losses to food insecurity and childcare crises.
While raising money for their current programs and services, nonprofits now must also attempt to help their communities face new challenges and serve new audiences.
Individual donors, grants, and event revenue long-standing fundraising strategies steeped in tradition and dependability. So why are some turning to a more novel eCommerce approach typically reserved for businesses?
While charitable giving grew by 5% in 2020 (over the previous year), with an estimated $471.44 billion donated to U.S. charities, the numbers for 2021 are still pending. What we do know is that people are tired, exhausted from a seemingly endless pandemic, and many are reluctant to give away money when they aren't sure what their own future holds.
If your nonprofit is contemplating going down this road of selling merchandise for a profit, there are a few things to know before you begin. First, and as with any tactic, it's essential to start with a nonprofit marketing plan that includes a brand mission statement, consult your board of directors, and where needed, consult with a financial expert or tax advisor.
Can nonprofits sell merchandise and make a profit?
The short answer is yes. One of the most common misconceptions about nonprofits is that a nonprofit cannot make a profit. In reality, nonprofits should not only aim to raise enough money to meet expenses but instead exceed them so that the surplus can help build an endowment or start or fund an emergency fund.
There are a few caveats to selling merchandise that nonprofits should know.
To maintain its tax-exempt status, any surplus of money the nonprofit makes must be generated from activities related to its mission.
If financial gain occurs from unrelated activities, then that profit must be taxed as business income.
For example, if a nonprofit organization rents building space to another tenant or organization, that income must be counted as taxable income. However, your nonprofit decides to sell some awesome merchandise to fund a new program, that money is simply part of your tax-exempt revenue, the same as donations or grants would be.
What are the best products for nonprofits to sell?
The best products for nonprofits to sell are the ones that have a direct tie to the organization. For example, it's incredibly easy to start with blank shirts, customize a design with your nonprofit logo or tagline and sell the end product at your annual 5K fundraising event.
Similarly, selling other promotional items like mugs, notebooks, hats, or keychains is likely to garner a little support and mediocre sales, as well.
However, when you think outside the box and work to pair a unique product with your specific mission, the magic begins. For instance, a local animal shelter may want to sell pet food storage containers with their name and website on the package. When you refill your own dog food, what better reminder that you should always grab an extra bag for the shelter!
Or, the local disability awareness nonprofit may want to create a placemat that clients can use when dining at a restaurant that features their logo and services.
Like any nonprofit activity, the best results come when the mission and the marketing operate in tandem.
How much should nonprofits charge for merchandise?
It can be challenging to figure out how much to charge for each product once you have decided what you want to sell. On the one hand, you're not a business, and you're not trying to compete with other local companies.
On the other hand, if you're going through the trouble (and time-consuming process) of purchasing inventory, designing merchandise, selling, and managing the delivery, you want that to be a good use of your time with a high return on investment.
Like most eCommerce platforms would do, pricing begins at the end -- what profit margin do you want to make?
According to Shopify, "as a general rule of thumb, a 10% net profit margin is deemed average, while a 20% margin is deemed high and 5% low."
Once you have determined your desired profit margin, you'll need to account for the cost of the goods you're selling and the expenses that go into the entire sales process - design labor, shipping or local delivery, marketing, etc.
Ultimately, what you charge for each item is a personal decision, and as long as it's transparent to your end customer, there are no "rules" to follow here.
Is there a downside to nonprofits selling products?
While there is not necessarily a downside to this strategy, there is an opportunity cost.
There's no question that the best and most effective way for a nonprofit to raise serious money is through one-on-one, major gift fundraising.
Given a choice between events, annual fund drives, product sales, or any other fundraising activity, I'd choose major gift fundraising every single time. However, adding product sales to your mix of revenue-generating activities is not a bad idea. It simply requires forethought and intention to ensure that the time spent on the venture does not detract from other, more pressing (and more effective) means of raising money.
Questions nonprofits should ask before they start selling products
Before you rush out to start your new product line, consider answering these questions first.
Is there a clear need for this product, and what marketing tactics will be required to generate enough sales to justify the effort?
Do we run the risk of donors looking at product purchases as a replacement for their charitable gift? If so, how can this be avoided?
Do we have enough brand awareness to generate sales from an audience that does not know us?
How can we establish a relationship with product-buyers and continue a line of communications that educates and inspires them to move along our donor continuum?
Do we have the time and resources to manage product sales in a way that will deliver an outstanding experience to buyers?
How does selling products move our mission forward and move us closer to achieving our vision for the nonprofit?
Key Takeaways
Charitable giving is always uncertain, and it's wise to diversify your fundraising efforts.
Nonprofits can absolutely make a profit selling products as long as those activities are directly related to the organization's mission.
The best selling products are those with a connection between the marketing and mission -- something unique that reminds customers of your organization.
Strategically pricing your products is an essential part of the process. Figure out your desired profit margin and work backward.
Selling products should never detract from more pressing and effective fundraising strategies like major gift fundraising and donor cultivation.
Does your nonprofit sell products? How did you determine what to sell and what advice would you recommend to others? Let us know in the comments!
Until next time,
Andrea
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One Nine Design is a digital marketing company helping nonprofits learn how to use their website and email list to grow their reach and make a bigger impact!