The Revenue Source Many Nonprofits—And Their Supporters—Misunderstand

The word “nonprofit” can create a misleading impression. It describes an organization’s purpose and how its surplus revenue is used—not a prohibition against charging for goods or services.

In fact, earned income helps many charitable organizations operate programs, cover expenses and become less dependent on donations or grants.

Earned income is money generated by providing goods or services connected to an organization’s mission. It can take many forms, including museum admissions, theater tickets, membership dues, youth sports registration fees, college tuition and payments received by nonprofit hospitals for patient care.

Tax-exempt organizations are generally permitted to generate this type of revenue when the activity is substantially related to their charitable purpose. Rather than distributing profits to owners or shareholders, nonprofits reinvest excess revenue in their programs and operations.

The scale of earned income across the sector may surprise many donors. According to 2022 data cited by Candid, it represented 71% of the combined revenue reported by U.S. nonprofits. Government funding accounted for 18%, while charitable contributions represented 11%.

Hospitals and universities were especially reliant on earned income, receiving 92% of their combined revenue through services and other income-generating activities. Even when those institutions were excluded, earned income still supplied approximately two-thirds of revenue among other nonprofit subsectors.

Individual organizations, however, use this funding model to different degrees. A 2024 Candid survey of nearly 3,800 nonprofits found that 51.4% reported some earned income. It was more common among large organizations, although more than one-third of nonprofits with annual expenses of $50,000 or less also reported receiving it.

The belief that charities should operate entirely on donations can create practical problems. Organizations may hesitate to charge reasonable fees, introduce memberships or sell products because they fear those activities will appear inconsistent with their nonprofit status.

That reluctance can limit an organization’s ability to strengthen programs or respond when grants and government support decline. Earned income is not appropriate or available for every nonprofit, but for many organizations it can provide a valuable source of stability.

Clear communication can help address public misconceptions. Nonprofits can explain how their fees support the mission, identify the sources that make up their revenue and show supporters how the money is used. Publishing financial information, including Form 990 filings, can provide additional transparency.

Generating revenue does not make an organization less charitable. When properly aligned with its purpose, earned income can help a nonprofit continue delivering the services its community depends upon.