Business Practices Your Nonprofit Should Adopt

How ROI, Customer Service, and Profit Can Help Your Charity

Volunteers helping at a construction site.
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While it might not look like it to those inside nonprofit organizations, at the end of the day, your nonprofit organization is a business.

That statement might make you a little uneasy. If you’re a lifetime member of the nonprofit sector or switched from the corporate sector, you might even be a bit disappointed.

Whether you’re starting a nonprofit or thinking about how your current nonprofit works, it’s important to understand just how alike a business and a nonprofit are. Also, being in nonprofit does not mean rejecting all business wisdom. After all, often it pays to think like a business. No business can exist (for long) if it fails to create value for others and convinces its customers that the company can make their lives better and more meaningful. Isn't that what a nonprofit does too?

Picture the last time you spent money on your Netflix subscription, a fancy meal, your insurance bill or even glossy prints of your child. A business created all of these things, and you purchased them because they add value to your life. The biggest difference is just what that value looks like. Instead of products and services, donors buy the satisfaction of making a difference. In many ways, this makes fundraising an even tougher gig than selling. It’s much harder to point at "mission success" than "number of widgets shipped."

5 Things All (Successful) Businesses Have and Great Nonprofits Share

So nonprofits are more like businesses than not. What does a successful business look like?

In Josh Kaufman’s Personal MBA, he states that a business::

  1. Creates and delivers something of value…
  2. That other people need or want…
  3. At a price they’re willing to pay…
  4. In a way that satisfies the customer’s needs and expectations…
  5. So that the business brings in enough profit for it to be worthwhile for the owners to continue operation.

If you break down each of these factors, it will change the way you look at running your nonprofit organization.

Create and Deliver Something of Value

The American Red Cross distributes aid to those in need. Habitat for Humanity builds homes. MilkWorks, a nonprofit in my hometown, provides educational sessions on breastfeeding.

For your nonprofit to be sustainable, find a need or a problem and work to solve it.

Solving a problem is the first law of startups and new businesses. Many nonprofits either don't identify a problem that needs to be addressed or go after the one that’s a poor match for their resources. Either way, you’re in trouble.

Avoid thinking too narrowly about how to provide value. One of our strongest desires is for meaning. Donating may add value to your life for a variety of reasons. For instance, giving is a social signal, it bolsters the donor’s self-image, and donors feel connected to something that matters. All of these deliver value.

Something that Other People Need or Want

It's not enough to create something that’s valuable if no one needs or wants it. Too many businesses create products that no one will buy. Don’t let the same thing happen to your nonprofit. When you’re designing a program, ask who is it for? Who will be happy to pay for it? Just because it’s important to you doesn’t mean it will be to the rest of the world.

Involve key donors in your nonprofit decisions by consulting with them and figuring out their passions. Send a survey to your donors and volunteers. Create a small prototype of your event or program to see if it works before throwing all your resources at it.

No matter how excited you are by an idea, the market always wins. That's true for both businesses and nonprofits.

At a Price, People Are Willing to Pay

Here's one of the best lessons I’ve learned from entrepreneur Seth Godin: If someone is willing to pay $4 for a latte, that latte is actually worth $5 to that person. We buy something because we think it’s a deal. If getting a latte right now is worth $5 of joy to me, I am thrilled to pay $4 for it. If your business gets back $2 for every dollar you put into advertising, you’ll spend to infinity because it will always be worth it.

Show donors their money creates more value for you than it would if they gave it somewhere else, or stayed in their bank account or was spent on a fancy coffee.

"$35 to remove a child’s cataracts and change their life." Put that in front of someone who believes that they can transform a child’s life forever you’ve got a donation. That donor is willing to pay because of the incredible return on investment he or she receives.

Satisfy the Customer’s Needs and Expectations

Creating value for your donors is just the start, however. It is a promise. Now you must deliver. Fundraising researcher Adrian Sargeant notes that customer satisfaction isn’t about never having problems. In fact, resolving a complaint makes customers more satisfied than those who have no complaints! This reveals a profound truth: Satisfaction is measured by how well you stack up to the expectations your donors have.

If you promise great things and then deliver amazing things, your donors will be highly satisfied. On the other hand, if you promise amazing things and deliver only greatness, they will be disappointed. Once you’ve set the expectations, you need to deliver them, and then communicate that. Make the experience with your nonprofit match the promises your nonprofit makes. Then, deliver beyond that expectation.

Bring in Enough Profit to Make it Worth Continuing

The most puzzling thing about the label "nonprofit" is the way it plays down the importance of making money. Just like a for-profit, if you don’t have any resources, you have a hard time achieving anything. You can’t pay employees. You can’t create good programs. And you won’t be able to fundraise effectively. In the digital world, cutting costs is easier than ever. Use Google Docs for project management. Use Skype to work remotely and save on facilities. Use online tools to collect donations. Blog and email to save on direct mail.

But, eventually, there is a limit to being frugal. You can only cut so many costs, but there is no limit to raising more moneyNonprofit and for-profits both need profit. What’s different is the definition of “enough” profit. If you don’t make enough profit that you can continue creating value and living up to your mission, operating cheaply doesn’t solve anything. This is the difference between being a cheap nonprofit and a frugal nonprofit. Instead of only cutting costs, a frugal nonprofit spends extravagantly on improvement to the organization.

Value your fundraisers. Turn your board members into evangelists. Measure the value of a new event or fundraising campaign. Invest in an excellent website and marketing. And give your staff the tools they need to succeed.

The "Business" of Changing Lives

Your nonprofit is (in most ways) a business. That doesn’t mean acting like a factory or relentlessly chasing profit.

But it does mean creating something of value. It means changing lives. And it means investing enough in yourself that your organization can continue to make the world a better, more amazing place to live.

Consider hiring a non-profit consultant. No matter how talented your team is, some tasks and projects could use an outside expert. Consultants can be especially helpful for special initiatives, key fundraising campaigns, or anything that falls outside your team’s typical skill set.

Marc Koenig is a digital marketer and nonprofit storyteller. He’s Senior Editor at Nonprofit Hub, a website dedicated to helping nonprofits do remarkable work.