Earned Income vs. Contributed Revenue: What Every Nonprofit Leader Needs to Know

For nonprofits, revenue comes from two main sources, earned income and contributed revenue:

• Earned income – money from business-like activities (exchange of goods/services).
• Contributed revenue – gifts or donations with nothing of equal value given in return.

Understanding and managing both is critical for compliance, sustainability, and mission impact.

Earned Income: Flexibility & Autonomy

Earned income is often unrestricted, giving nonprofits more control over how funds are used.

Examples:

• Membership dues
• Program or service fees
• Ticket and merchandise sales
• Consulting or management services

👉 Pro Tip: Prioritize earned-income ventures that align with your mission. A youth center running paid after-school programs makes sense; running a coffee shop might not.

Contributed Revenue: Philanthropy & Community Support

Contributed revenue might come with donor restrictions, but it can fund programs that earned income can’t cover.

Examples:

• Individual donations
• Grants (foundation or government)
• Corporate sponsorships
• Gala or fundraising event proceeds

👉 Pro Tip: Be transparent about how contributions are used — it builds donor trust and strengthens relationships.

Hybrid Revenue: Fundraising Events

Some transactions are part earned, part contributed. Example: A gala ticket costs $200, but the dinner and entertainment are worth $75.

• $75 = earned income
• $125 = contributed donation (tax-deductible for the donor)

👉 Action Step: Always split the revenue correctly in your accounting records.

Tax Considerations: UBIT Traps

Not all earned income is tax-exempt. Nonprofits must pay Unrelated Business Income Tax (UBIT) if the revenue is:

• Regularly earned and
• Not substantially related to the organization’s mission.

Example: A nonprofit hospital cafeteria = mission-related. A nonprofit selling ad space to local businesses = potentially taxable.

Finding the Right Mix

The ideal balance depends on your nonprofit’s:

• Mission – Earned ventures should advance your core purpose.
• Stage of Growth – Startups may lean on donations; mature organizations often have robust program revenues.
• Goals – Earned income brings stability; contributions fund innovation and access.
• Financial Health – Avoid over-reliance on one source; diversify for resilience.
  
  

Action Steps for Nonprofit Leaders

1. Map Your Revenue Mix: What % is earned vs. contributed?
2. Assess Risks: Is your organization too reliant on one revenue stream?
3. Align with Mission: Ensure earned income activities support your purpose.
4. Stay Compliant: Track restrictions and monitor UBIT exposure.
   
   

Bottom Line:

Earned income gives flexibility, and contributed revenue builds community. A thoughtful mix of both helps nonprofits stay sustainable, mission-driven, and resilient. Do you have questions about earned income and contributed revenue? Leave a comment below, or feel free to contact me directly. I’m happy to help!