How Nonprofit News Should Think About Earned Income

Diversifying revenues is key; counting up “revenue streams” is not

Welcome to Second Rough Draft, a newsletter about journalism in our time, how it (often its business) is evolving, and the challenges it faces.

One common dream of every nonprofit, including nonprofit news organizations, is to achieve “sustainable” revenues. And the most sustainable revenues are those which are “earned,” received in exchange for goods or services—that is to say, capitalism works. Except when it doesn’t, which is why nonprofits exist, and why they depend on contributions of various sorts.

This week I want to talk about earned revenues, but not so much where to get them (every case will differ), as how to think about them. Here are a few guidelines.

Focus on net, not gross

There are many fundamental differences between for-profit and nonprofit organizations, but one of the most critical is that nonprofits cannot be sold. They can merge, or absorb other organizations, or even be given away, but you can’t buy them—there is no one to pay, and while nonprofits have balance sheets, they do not have what bankers might call “enterprise value.”

One consequence of this is that, where many for-profit ventures (especially in their early stages) focus on revenues as a key indicator of progress, nonprofits look more closely to net results (growth in reserves) or even just expenses (which must, ultimately, be offset).

This is especially true of earned revenues. If you take in two million dollars, for instance, from a series of live and virtual events, that’s great—only a very few nonprofit news organizations in this country achieve such a result. The events, of course, have value for themselves, in serving attendees, building lists and brands, pursuing mission. But it’s very different if that two million dollars in revenue cost half a million or $1.9 million to produce. In the former case, you have a revenue stream that will meaningfully and directly offset other news costs; in the latter, you don’t.

gross and net can differ significantly

That’s why, for any effort to raise earned revenues, managers need a solid accounting of what the revenue is costing them: not just what bills are incurred to mount the events, but also how many employees, paid what salaries and benefits, are spending roughly what proportion of their time bringing in those revenues? The same analysis needs to be undertaken for advertising or data or syndication or film rights sales.

No donations are “earned”

In the early days of the current wave of nonprofit journalism, many observers, especially in some of our leading institutional foundations and graduate schools, posited that there was some magic in diversifying the number of revenue sources a newsroom could draw on. They would count them up—three was better than two, four yet better. This was largely a fallacy, albeit one based in an important insight.

The insight is that diversification of revenue sources is critical for a healthy nonprofit. Two donors of $500 is better, for instance, all else equal, than one of $1000, and a thousand donors of a dollar each is yet better. The reasons include bolstering editorial independence and being less vulnerable to the moods or just changing circumstances of any one donor. Moreover, as we acknowledged at the outset, earned revenues, precisely because they are transactional and replicable, are likely to be more sustainable.

But each source of revenue requires a different type of effort, and the transaction costs (especially in staff time) can be considerable. In my observation and experience, one million dollars in contributions is far better than $900,000 in donations and $5000 each in net advertising, data and syndication sales. Indeed, we can measure the difference: it’s about 9% better (assuming roughly the same cost of obtaining the donations).

Lincoln did not call the Mississippi the “father of waters” because of its multiple streams

A good bit of the silliness about counting revenue sources has faded in recent years, but one vestige is an effort to count various kinds of donations as different “revenue streams,” unrelated to others. Yes, there are important differences in raising money from institutional foundations (those with professional staff deciding how to give away other people’s money), wealthy people and smaller donors (“members”) approached through email and direct mail. Yet, while the techniques of how to approach these constituencies significantly differ, it’s very important, I think, to remember that all are donors, giving out of belief, and that none of these relationships are, at base, transactional.

More is better, less is more likely

I don’t want to be misunderstood here. More (net) earned revenues are generally better than less. Sources of net earned revenues are worth exploring and exploiting.

That said, almost 15 years into the current flowering of nonprofit news, very few organizations have developed any meaningful amount of earned revenues. (ProPublica’s new annual report puts their figure for 2021 at less than one percent of total revenues.) When you see such results as a common thread across hundreds of efforts, I think the world is trying to tell you something.

in the end, likely not that much

One last, related point: The pressure to “diversify” revenues is leading to some calls for news organizations to simultaneously seek money both through membership (donations) and paywalls (earned revenue). For the most part, this advice is being proffered to for-profits, who represent the considerable majority of newsrooms for whom paywalls have been successful, even as most paywall strategies appear to be falling short.

I think it’s generally unwise to try this.

The two marketing approaches are quite different, and the optimal timing at some variance (many, many membership gifts, for instance, come at year-end, while subscriptions are spread much more evenly across the calendar).  It might make sense to solicit additional donations at the time of subscription/renewal, but running what amounts to separate campaigns aimed at the same readers seems to me almost impossible to track for effectiveness, with the risk of depressing critical renewal rates all too real.