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This is an archived post from our old blog. It's here for the sake of posterity (and to keep the search engines happy). Our new blog can be found at http://blog.fracturedatlas.org.

We Earn our Grants, But That's Not the Point

Once upon a time, non-profit organizations had two different kinds of revenue: "earned" and "unearned". Earned revenue was the money from ticket sales, admissions, and other services. Unearned revenue came from grants and contributions.

At some point, it occurred to someone that calling a major source of income "unearned" made us all sound like a pretty lazy bunch. After all, just because a foundation is paying you to carry out a particular activity doesn't mean you're not working just as hard. So the term fell out of fashion and was replaced by "contributed".  Non-profits today still have two different kinds of revenue, but now they're called "earned" and "contributed".

This linguistic slight of hand was a step in the right direction, but I'm not convinced it really touched on the underlying issue. First, since one side of the new dichotomy is still "earned", there remains an unspoken implication that contributed revenue is somehow less honestly procured. More importantly, though, we're framing the issue through the wrong lens altogether.

The real distinction that we're trying to make with this terminology is about whether or not the revenue comes from the actual consumers of the service in question. Earned revenue comes from the people our programs are ultimately serving, while contributed revenue comes from interested third-parties (i.e., donors or funders).

So what's the point? Isn't this just a trivial reframing? I don't think it is, because once you've started dividing your revenue in this way, it's hard to avoid some soul searching on the most important question that non-profits rarely ask themselves: who is our customer? I've written about this in the past so I won't rehash all of that here. But the main point is that the answer to this question is arguably the most central determining factor in an organization's identity, and yet most of us in the non-profit sector are uncomfortable even uttering the word "customer".

We need new language that describes our sources of revenue from this perspective. "Direct Revenue" and "Indirect Revenue" is one possibility, but I'm sure there are others. If you have ideas, post them in the comments.