The only real study of nonprofit earned revenue is 21 years old. Nobody has redone it

Somebody is going to show your board a slide about earned revenue this year, and the number on it will trace back, if you follow it far enough, to a single article published in February 2005. That article is Foster and Bradach, "Should Nonprofits Seek Profits?", in Harvard Business Review. It is the only random sample study of whether nonprofit earned income ventures actually make money that anyone in this sector cites, and in the twenty one years since, nobody has redone it. Not the consultancies selling feasibility studies. Not the foundations funding the ventures. Not us.

That absence is the story, and it deserves a long look before you evaluate a single projection.

What the 2005 article actually found

Start with what is verifiable at the source. Harvard Business Review's own published abstract for the February 2005 article states that earned income projects "account for only a small share of funding in most nonprofit domains, and few of the ventures make money." The authors describe what they found in the organizations they studied as "a pattern of unwarranted optimism," where potential financial returns were "often exaggerated" and the challenges of running a business were "routinely discounted." That is the publisher's own language, and it is the part of the finding that has never been contested.

The example in the abstract is the one people remember. A nonprofit selling salad dressing believed it was spending $3.15 to produce each bottle it sold at $3.50. Once unused ingredients and managers' salaries were factored in, the true cost per bottle, per Foster and Bradach in the February 2005 Harvard Business Review, "reached a staggering $90." The failure is not that the dressing did not sell. The failure is that the organization could not see its own cost, and the version of the number it could see looked like a business.

Two figures from the same article get quoted constantly. Foster and Bradach drew a random sample of 41 nonprofit ventures that had received philanthropic funding in 2000 or 2001, found 71 percent of them unprofitable, and found that of the roughly 24 percent reporting profits, half had not fully accounted for indirect costs. Both trace to the February 2005 Harvard Business Review article, and the full text sits behind HBR's paywall: the abstract material above we read directly, the 71 percent we did not. If you are going to put that number in a board deck, buy the reprint.

If the study is too old, where is the new one

A twenty one year old study of 41 ventures tells you nothing about 2026. That is the honest objection, and half of it is correct: 41 organizations is a small sample, the funding environment has turned over twice since then, and any single study that old deserves pressure.

Here is where that objection goes somewhere uncomfortable. If Foster and Bradach is too old and too small to rely on, then the sector has no current evidence that earned income ventures are profitable, because this is the only random sample profitability study anyone cites and nobody has produced a newer one. The enthusiasts have not produced one. Twenty one years of social enterprise conferences, accelerators, funds, and feasibility consulting have generated an enormous amount of case studies and not one replication of the base rate. So either the 2005 finding stands, in which case most ventures lose money and the optimism is systematic, or the evidence vacuum stands, in which case anyone pitching you a venture is working from case studies and conviction. Both readings end in the same place: demand full cost accounting before you commit anything.

The second counter is REDF, the most experienced funder of employment social enterprises in the country. Its published position is that it is very hard for these businesses to break even on earned revenue alone, that margins in labor intensive small businesses are thin, and that some enterprises may never break even while still being successful, because their sustainability model relies on fundraising to cover the gap. That is a coherent and defensible position for a workforce funder. It is also a completely different claim from the one being made when somebody tells your board that earned revenue will produce unrestricted surplus. Employment mission success is not unrestricted surplus success, and conflating the two is how a venture that was always going to need subsidy gets sold as a funding strategy. When someone cites REDF at you, ask which kind of success they mean.

We sell the thing this post questions

We sell earned revenue optimization, and the evidence base for the category we work in is one unreplicated study from 2005. A firm selling feasibility studies cannot say that out loud, so it does not get said, and the gap stays where it is.

What we actually believe, and what the 2005 finding supports rather than undercuts: the ventures that fail are failing at accounting before they fail at market. The salad dressing organization did not misread demand, it misread its own cost structure, and $86.50 of loss per bottle was invisible on the internal math. That is a fixable class of error, and it is fixable before launch, which is the entire point. The organizations we work with are already running appointments, enrollments, and memberships that generate real revenue right now, and the question is never whether to build something new, it is whether the thing already running is priced against its fully loaded cost. Most cannot answer that on the first ask. That answer, not a market study, is what predicts whether the next dollar of effort earns anything.

What to do with a pitch

When the next earned revenue proposal reaches you, three questions do most of the work. Ask what the fully loaded cost per unit is, including the share of your executive director's attention and the overhead the venture will consume without ever being charged for it. Ask what the evidence base is, and if the answer traces back to 2005, ask what has been published since. Ask whether the success being promised is surplus or mission, because those are different products and only one of them fixes a budget.

An organization that can answer all three has a real shot at this. An organization that cannot is about to spend eighteen months of its scarcest capacity finding out what Foster and Bradach documented in February 2005 and nobody has bothered to check since.