Will Selling Goods for Your Nonprofit Actually Make Money?
Do a break-even analysis before you make any up-front investments.
Despite being called “nonprofits,” many charitable organizations in the United States sell goods at a markup, in order to earn a profit. And that’s legally okay, under certain circumstances described in “Tax Concerns When Your Nonprofit Corporation Earns Money.” In fact, selling goods can be a fine way to raise funds from an audience outside your usual donor base, and to mobilize your members or volunteers around a particular activity (think Girl Scout cookies).
But with limited time and resources, you want to avoid another scenario familiar to nonprofits: garages full of unsold goods, or lots of effort put into an activity that barely covers its own costs – if at all. In this article, we’ll cover how to do some basic math – don’t panic, it’s very basic – in order to avoid such eventualities.
Jackie, a parent volunteer with her daughter’s Girl Scout troop in California, describes what happens if you skip this step: “Our troop came up with the idea of setting up a fingernail-painting booth at the local elementary school’s fall carnival. We thought, this will be great, everyone will bring some nail polish, and our middle-school age kids will have fun painting the elementary-school kids’ fingers, charging $2 apiece. Lots of moms got involved in the coordinating, and we all bought new nail polish so that it was considered sanitary. After five hours of work at the fair, with ten youth volunteers and five adults, we made only $38—and I’m pretty sure we spent more than that on nail polish.”
To avoid such scenarios, figure out your likely:
• Up-front and fixed costs. These are the costs that you will have to pay regardless of how much you produce or sell, such as a hall or booth rental, basic supplies such as a sign, cash box, and other equipment, and paid staffing with a guaranteed number of hours, such as for a security guard at an event. Beware of having to make large, nonreturnable investments up front. As Debbie, former PTA President at a California school remembers, “We tried selling candy one year, including Easter baskets. But we had to buy it ahead of time, and sales went slowly. For a while, every time we had a school open house, someone would be selling that candy.”
• Variable costs. This means per-item costs to buy or make, or costs that rise along with sales levels. For example, if you’ll be selling baked goods, you might need to add up the costs of ingredients, and ribbons for wrapping them up nicely.
• Price. Settle on a price that covers your variable costs plus a cushion—limited by how much people will be willing to pay. (Of course in some cases, where you’re following the dictates of a catalog vendor, you’ll be told what price to charge.)
Before you set the price in stone and forge ahead, however, figure out how many you’ll need to sell, at an absolute minimum, in order to break even. The formula for figuring this out is:
Average fixed costs divided by (average per-unit price minus average per-unit variable cost) =
Break-even sales number
So, for example, if you are planning to sell brownies at a carnival, and will be charging $1 for each, and you figure your fixed costs (booth, gas, and sign) will be $50 and your variable costs (ingredients, packaging materials, and napkins) $60 for every 200 brownies (or 25 cents per brownie), your break-even calculation would look like this:
$50 divided by ($1 − 25¢ or .75) = 66
In other words, you would need to sell 66 brownies at $1 apiece in order to simply break even. If that sounds easy, your plan isn’t dead on arrival – it may be worth continued planning. But remember, you’ll need to move well beyond that break-even level of sales, or else raise your price, to actually make a profit.
Also, if you fail to sell some of your inventory within the allotted time, you’ll have to subtract the costs of producing it from your profits. Not to mention the fact that we’re assuming that all the labor is volunteer — but as Jackie alluded to in the story above, your time is valuable, and spending hours at an activity that makes less money than you could have earned by say, clipping a coupon or bringing your lunch to work for a few days, can feel pretty ridiculous. If the numbers don’t look promising enough, rethink your sales plan, or at least your price.
NOTE: The above material is excerpted from The Volunteers’ Guide to Fundraising: Raise Money for Your School, Team, Library or Community Group. See that volume for more information on raising money through sales, as well as special events, auctions, individual requests, and more.