Nonprofit Facts

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Nonprofit Doesn’t Mean No Profit

All of these statements are true! 1) Nonprofits can be profitable. 2) Nonprofit is a tax status, not a business operating model. 3) Nonprofits must use all their profit on expenses that support their mission.

We often assume “nonprofit” must mean “no profit.” The truth is many nonprofits do make a profit in a given year with surplus revenue exceeding their expenses. As a sector, nonprofits generated $265 billion in profit⁽¹⁾ – the equivalent of a 10% net profit margin – with most of that revenue coming from program fees such as medical or educational services. So it’s a myth that nonprofits are all operating at a loss or barely breaking even.

Is it a problem that some nonprofits are profitable? No. Contrary to common (mis)perception, the IRS code does not require organizations classified as 501(c)(3) to have no profit. Rather, the code specifies that these organizations use any profit to fulfill their mission. Unlike for-profit companies, nonprofits do not pass along their profit to “owners.” They put it right back to work for the communities they serve.

That said, not all nonprofits are profitable. Like their for-profit counterparts, larger nonprofits tend to have larger profits than smaller ones. But not all large nonprofits are profitable and not all small nonprofits operate at a loss (see chart below for a view). Regardless, nonprofits of all sizes need help securing financing to continue to serve their communities.

LENDonate is the first lending marketplace dedicated to providing nonprofits with access to reasonably priced loans, so they can continue to do what they do best: create change. Discover how your investments can help amplify the direct impact that nonprofits make in our communities.

⁽¹⁾IRS Statistics of Income, data for Tax Year 2020. “Table 1: Form 990 of Returns of 501(c)(3) Organizations, Balance Sheet and Income Statement Items, By Asset Size” (accessed Sep 19, 2024).

How Do Nonprofits Get Paid?

It may surprise you that 81% of nonprofit revenue comes from fees and services.

If you’ve ever purchased tickets to a museum, paid an adoption fee at an animal shelter, or rented event space at a community center, then you’ve witnessed firsthand how nonprofits create revenue beyond donations and grants to fulfill their mission. What may be surprising is the extent to which nonprofits rely on earned income: as a sector, 49% of nonprofit revenue comes from private fees for services like those above. Almost 32% is earned from contracts with the government to provide services critical to communities.

For many nonprofits, particularly larger ones or those associated with hospitals or universities, earned income is the primary source of revenue. It may be tempting to think that earned income is a “better” form of revenue than contributions or donations, and that this is true for all nonprofits – but that’s not necessarily the case. After all, without private donations, many nonprofits would be unable to provide below-cost services (think healthcare, shelter or food) to their communities. Smaller nonprofits are nimble and particularly effective at creating local impact and do so by leaning more heavily on donations rather than earned income. Ultimately, the best nonprofit revenue model is the one that creates sustainability for the organization and the communities they serve.

Nonprofits are Significant Contributors to the Economy

On average, 5.1-5.6% of US GDP comes from nonprofits.

While few of us take the social or environmental impact of #nonprofits for granted, we tend to overlook how important they are for our economy. Did you know that through fundraising, grants, earned income and other activities, nonprofits boast revenue that rivals major for-profit US sectors? In fact, the revenue of the nonprofit sector was $2.7 trillion.⁽¹⁾ This sector is estimated to have contributed 5.6% to the US GDP.⁽²⁾

Why does this matter? Like for-profit entities, nonprofits use their revenue to provide services. But how do nonprofits operate when grants and accounts receivables are delayed? How do they grow when demand spikes? Faced with a similar situation, a for-profit entity in another US sector might turn to the capital markets for loan, bond, or equity financing. Nonprofits, on the other hand, lack this access. One reason? We underestimate how robust and strong the nonprofit sector truly is.

⁽²⁾U.S. Bureau of Economic Analysis, “Table 1.3.5. Gross Value Added by Sector” (accessed Thursday, September 19, 2024).

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