Community organizations sometimes generate revenue by developing, licensing, producing, or selling products.
Products may range from books, curricula, educational materials, artwork, and branded merchandise to software, toolkits, games, digital resources, or other mission-related goods.
Product sales can diversify revenue, expand access to useful organizational knowledge, increase visibility, and sometimes create employment or community-economic opportunities.
They can also create substantial financial, operational, tax, regulatory, consumer-protection, product-safety, inventory, technology, and staffing responsibilities.
The goal should not simply be to find something the organization can sell. A product venture should make sense for the mission, provide genuine value to customers, and be financially and operationally sustainable.
Why might an organization develop and sell products?
To generate earned revenue
Product sales can provide an additional source of organizational revenue.
That revenue may be comparatively flexible, but it should not be described as guaranteed, unrestricted in every respect, or automatically available for any purpose.
Product revenue remains subject to:
- The organization's exempt purpose
- Tax requirements
- Contracts
- Donor or grant restrictions affecting resources used in the venture
- Accounting requirements
- Consumer-protection requirements
- Other applicable law
Measure the success of the venture using net financial contribution, not gross sales.
Include:
- Product-development costs
- Materials
- Manufacturing
- Staff time
- Benefits
- Technology
- Storage
- Shipping and fulfillment
- Platform and payment-processing fees
- Marketing
- Returns
- Customer service
- Insurance
- Taxes
- Compliance
- Administrative and indirect costs
To advance the mission
Some products directly extend an organization's charitable or educational work.
Examples might include:
- A literacy organization publishing accessible reading materials
- A community-health organization distributing evidence-based educational resources
- An environmental organization developing field guides or learning materials
- A training organization publishing curricula or toolkits
- An arts organization selling work connected with its programs
A clear connection between the product activity and the organization's exempt purpose can also be important for federal tax treatment.
To make organizational knowledge available to others
Organizations sometimes develop valuable curricula, training materials, software, assessment tools, publications, or implementation guides through their community work.
Selling or licensing those resources may help other organizations use them while generating revenue for continued development and support.
To strengthen visibility and engagement
Appropriate merchandise, publications, or educational products can increase awareness of the organization and its work.
Visibility should be treated as a separate objective from financial return.
A T-shirt program that generates little net revenue might still have communication value, but the organization should know which objective it is funding.
To support community economic opportunities
A product enterprise may sometimes create:
- Paid employment
- Job training
- Cooperative ownership
- Local purchasing
- Supplier opportunities
- Community wealth-building
For example, community organizations might collaborate with local producers and experienced business managers to develop a food enterprise that creates paid employment for people receiving public assistance and other residents facing economic barriers.
If employment is part of the strategy, workers should be treated according to applicable wage-and-hour, workplace-safety, employment, and nondiscrimination requirements rather than simply as inexpensive labor supporting the nonprofit.
What are the risks?
Financial loss
Product businesses require capital before revenue is certain.
Potential costs include:
- Research
- Prototypes
- Design
- Manufacturing
- Inventory
- Packaging
- Compliance
- Insurance
- Sales infrastructure
- Marketing
Demand may ultimately be lower than expected.
Unsold inventory can tie up cash and may become obsolete, damaged, expired, or costly to store.
Mission drift
A financially attractive product can consume increasing amounts of leadership and staff attention.
Ask regularly:
- Does this activity still advance our mission?
- Are commercial priorities displacing higher-priority community work?
- Are staff incentives becoming focused primarily on sales?
- Would another organization be better positioned to produce or distribute the product?
Market risk
Product revenue may change because of:
- Economic conditions
- Competitors
- Customer preferences
- New technology
- Supply-chain disruptions
- Platform changes
- Price changes
- Loss of important suppliers or distributors
Product sales therefore should not automatically be treated as more stable than grants, contributions, contracts, or other revenue.
Tax risk
A tax-exempt organization can engage in commercial activity, but product sales may create federal unrelated business income tax.
For most exempt organizations, an activity generally constitutes an unrelated trade or business when:
- It is a trade or business.
- It is regularly carried on.
- It is not substantially related to accomplishing the organization's exempt purpose.
The fact that an organization uses the profits to support its mission does not by itself make the sales activity substantially related.
Federal tax law also contains exceptions and exclusions that may apply in particular circumstances, including certain activities conducted substantially by volunteers and certain sales of donated merchandise.
Organizations with $1,000 or more in gross income from an unrelated business generally have a federal Form 990-T filing requirement.
Obtain qualified tax advice when the relationship between a product venture and the organization's exempt purpose is uncertain or when unrelated commercial activity may become significant.
Consumer and reputational risk
Customers may associate the quality, safety, claims, and service surrounding a product with the nonprofit organization itself.
Poor products, misleading advertising, data-security problems, delayed orders, unsafe merchandise, or weak customer service can damage both the business activity and the organization's broader reputation.
When should you consider developing a product?
Consider proceeding when several conditions are present.
The product fits the mission or organizational strategy
The strongest product opportunities often build on knowledge, expertise, intellectual property, relationships, or programs the organization already has.
Ask:
- Why should our organization offer this product?
- How does it contribute to the mission?
- Does selling it create any conflict with participant interests or organizational values?
There is evidence of customer demand
Enthusiasm inside the organization is not enough.
Use proportionate customer discovery to determine:
- Who might purchase the product
- What problem or need it addresses
- What alternatives already exist
- What features matter
- What customers are willing to pay
- Which sales channels they use
The organization has sufficient capacity
Assess:
- Leadership time
- Staff expertise
- Startup capital
- Working capital
- Technology
- Financial systems
- Customer service
- Storage and fulfillment
- Legal and tax support
- Risk-management capacity
The financial model is realistic
Develop a financial-feasibility model that estimates:
- Startup costs
- Unit cost
- Price
- Expected sales volume
- Gross margin
- Fixed operating costs
- Platform and transaction fees
- Inventory requirements
- Refund and return rates
- Marketing cost
- Working-capital requirement
- Break-even point
- Expected net contribution to the organization
Include scenarios in which sales are materially lower than projected.
The organization can tolerate the risk
Do not invest operating funds needed for essential programs, payroll, participant services, or financial reserves in a speculative commercial venture without careful board review.
Establish in advance:
- Maximum capital at risk
- Performance milestones
- Conditions for additional investment
- Conditions for ending the venture
Develop a business and mission plan
A product venture should have a written plan even when outside financing is not needed.
Include:
- Mission rationale
- Product description
- Intended customers
- Market research
- Competitor and alternative analysis
- Pricing
- Marketing and distribution
- Production
- Staffing
- Technology
- Legal and tax analysis
- Risk management
- Financial projections
- Evaluation metrics
Treat the plan as a decision tool rather than a document designed merely to make the venture appear attractive.
How do you develop a product?
1. Begin with a clear customer need
Product development should start with an identifiable need or opportunity.
A useful product should generally:
- Have a clear relationship to the organization or its expertise
- Provide genuine value
- Meet appropriate quality and safety standards
- Be accessible to intended customers
- Be financially feasible to produce and distribute
2. Research potential customers
Depending on the project, use:
- Interviews
- Surveys
- Focus groups
- Prototype testing
- Pilot sales
- Existing organizational data
- Competitor research
- Search and marketplace data
Research participation should be voluntary.
Use additional care when recruiting participants through service programs or when research involves children or other populations requiring additional protections.
3. Develop and test a prototype
Before committing to large production quantities, test the product.
Evaluate:
- Quality
- Ease of use
- Accessibility
- Safety
- Instructions
- Packaging
- Durability
- Customer response
For software or digital products, also consider:
- Security
- Privacy
- Compatibility
- Performance
- Accessibility
- Maintenance
4. Determine regulatory requirements before production
Requirements vary by product.
Areas that may require specialized review include:
- Food
- Medical or health products
- Children's products
- Cosmetics
- Supplements
- Electrical products
- Transportation or safety equipment
Do not assume that a charitable mission exempts the organization from product regulation.
Medical and health products
Products intended to diagnose, treat, mitigate, prevent, or affect health may fall under Food and Drug Administration requirements.
Depending on the product and the organization's role, requirements can involve:
- Device classification
- Premarket clearance or approval
- Establishment registration
- Device listing
- Labeling
- Quality-management requirements
- Complaint and adverse-event processes
Obtain regulatory expertise before developing or branding medical devices or diagnostic products.
Consumer products and children's products
Manufacturers, importers, distributors, and retailers of consumer products may have obligations under federal product-safety laws.
Children's products can have additional testing, certification, labeling, and tracking requirements.
Determine applicable requirements before production, importation, or sale.
5. Protect intellectual property appropriately
Determine who owns:
- Written materials
- Artwork
- Photography
- Software
- Logos
- Product designs
- Trademarks
Obtain written assignments, licenses, permissions, or work agreements where needed.
Do not assume the organization owns a product merely because an employee, volunteer, contractor, participant, or board member created it while helping the organization.
Selecting manufacturers and suppliers
Evaluate suppliers based on factors such as:
- Product quality
- Price
- Production capacity
- Delivery performance
- Safety and regulatory compliance
- Labor and sourcing practices where relevant
- Insurance
- References
- Financial stability
Local purchasing can strengthen the local economy and simplify communication, but location should be one factor rather than a substitute for quality, reliability, compliance, or cost analysis.
Manage conflicts of interest
A supplier may have a personal relationship with a staff member, board member, donor, or other organizational leader.
Follow the organization's conflict-of-interest and procurement policies rather than allowing personal loyalty to determine supplier selection or retention.
Put important supplier terms in writing
Agreements may address:
- Specifications
- Pricing
- Minimum order quantities
- Delivery
- Quality standards
- Defective products
- Intellectual property
- Confidentiality
- Regulatory compliance
- Insurance
- Recall cooperation
- Termination
Publishing and digital products
Organizations developing books, curricula, research, guides, or digital materials may have several options.
These can include:
- Traditional commercial or academic publishing
- Self-publishing
- Print-on-demand
- Digital publication
- Licensing to another publisher or platform
Compare:
- Control
- Development cost
- Printing or hosting cost
- Distribution
- Marketing
- Royalties or platform fees
- Inventory risk
- Accessibility
- Intellectual-property rights
Do not assume that traditional publishing eliminates marketing responsibilities or that self-publishing means the organization keeps every dollar of the sale.
How do you market the product?
Understand the audience
Learn:
- Who has the problem the product addresses
- Where they look for information
- Which features matter
- What alternatives they use
- How they prefer to purchase
- What price range is realistic
Customer preferences should inform product decisions, but they should not override mission, safety, evidence, accessibility, or ethical standards.
Communicate truthfully
Advertising claims should be accurate, nondeceptive, and supported by appropriate evidence.
This is particularly important for claims involving:
- Health
- Safety
- Environmental benefits
- Educational outcomes
- Product performance
Do not make a claim simply because it sounds persuasive.
Use endorsements and reviews responsibly
If staff members, volunteers, influencers, experts, customers, or partners endorse a product, ensure that:
- The endorsement is truthful
- Claims can be substantiated
- Material relationships are disclosed
- Reviews are not fabricated, manipulated, or selectively presented in a misleading way
Choose channels based on customer behavior
Potential channels include:
- An organizational e-commerce site
- Online marketplaces
- Retail partners
- Events and conferences
- Professional associations
- Social media
- Search
- Community partners
- Direct mail
- Physical retail locations
Choose channels based on actual customer behavior, economics, accessibility, and organizational capacity rather than assuming that every product should be marketed everywhere.
Monitor marketing performance
Useful measures may include:
- Sales
- Conversion rate
- Customer-acquisition cost
- Repeat purchases
- Return rate
- Net margin
- Sales by channel
- Customer feedback
Do not scale marketing simply because gross sales are increasing. Determine whether each channel produces sustainable net value.
Selling online
Online commerce should be treated as a core operational function rather than an optional add-on.
Accessible online shopping
Design websites, product information, forms, and checkout processes so people with disabilities can access and use them.
Consider:
- Keyboard navigation
- Alternative text for meaningful images
- Captions for video
- Sufficient text contrast
- Accessible form labels
- Clear error messages
- Screen-reader compatibility
Protect customer information
Collect only information needed for legitimate transactions, customer service, compliance, and consented communications.
Establish practices for:
- Secure accounts
- Payment processing
- Access controls
- Privacy notices
- Marketing preferences
- Data retention
- Vendor access
- Incident response
Use reputable payment processors and avoid retaining sensitive payment information unless the organization has a clear operational reason and appropriate safeguards.
Establish realistic shipping commitments
Sellers should not promise delivery dates they do not have a reasonable basis to meet.
Establish procedures for:
- Shipping estimates
- Inventory availability
- Delays
- Cancellation
- Refunds
- Lost or damaged shipments
Pricing
Set price using the full economics of the product.
Consider:
- Unit production cost
- Packaging
- Freight
- Storage
- Payment-processing fees
- Marketplace fees
- Returns
- Customer service
- Marketing
- Administrative overhead
- Sales tax where applicable
- Desired contribution margin
Compare market prices, but do not choose a price solely by copying competitors.
When the organization intentionally subsidizes a mission-related product to keep it accessible, identify how that subsidy will be financed.
Create the infrastructure to operate the venture
Tax and legal structure
Review:
- Federal unrelated business income
- State and local sales tax
- Business registrations or permits
- Product-specific regulation
- Consumer-protection law
- Intellectual property
- Employment
- Insurance
Sales-tax obligations vary by jurisdiction, product, organizational exemption, sales channel, and other circumstances. Do not assume that federal tax-exempt status automatically exempts every sale from state or local sales tax.
If a product activity is substantial, highly commercial, or unrelated to the organization's exempt purpose, obtain professional advice about the appropriate structure.
In some circumstances an organization may consider a separate taxable subsidiary, but creating one is a significant tax, governance, accounting, liability, and operational decision - not an automatic response to successful sales.
Product liability and insurance
Review insurance coverage before placing products into the market.
Depending on the product, consider:
- General liability
- Product liability
- Cyber coverage
- Property and inventory coverage
- Shipping or transit risk
Inventory management
Maintain an inventory system appropriate to the scale of the operation.
Monitor:
- Units available
- Units sold
- Inventory value
- Reorder points
- Slow-moving inventory
- Damaged or obsolete inventory
- Product expiration where applicable
Use stock-keeping units, barcodes, or other identifiers when they add useful control.
Order fulfillment
Establish systems connecting:
- Orders
- Payment
- Inventory
- Packing
- Shipping
- Delivery confirmation
- Returns
Decide whether fulfillment will be handled internally or by a qualified third party.
Customer service
Publish understandable policies for:
- Returns
- Refunds
- Exchanges
- Defective products
- Shipping problems
- Warranties where applicable
- Complaints
Track recurring complaints because they may reveal product, supplier, safety, or fulfillment problems.
Financial management
Establish accounting systems that clearly identify:
- Sales revenue
- Cost of goods sold
- Operating expenses
- Inventory
- Accounts receivable
- Refunds
- Sales taxes
- Platform and processing fees
- Unrelated business income where applicable
Establish appropriate internal controls for cash, online payments, purchasing, refunds, inventory adjustments, and financial reconciliation.
Monitor the venture
Review both financial and mission performance.
Financial indicators may include:
- Gross sales
- Gross margin
- Net contribution
- Inventory turnover
- Customer-acquisition cost
- Return and refund rates
- Cash flow
- Sales by channel
Mission and quality indicators may include:
- Whether the product continues to advance the mission
- Customer experience
- Accessibility
- Product quality
- Safety
- Staff workload
- Community impact
A product with growing sales may still be a poor organizational investment if its margins are weak, its risks are increasing, or it diverts staff from more important mission work.
Establish exit criteria
Decide in advance when the organization will:
- Change pricing
- Redesign the product
- Change suppliers
- Change sales channels
- License the product to another organization
- Reduce inventory
- End the venture
Ending an unsuccessful product should be treated as responsible management rather than organizational failure.
In Summary
Developing and marketing products can provide community organizations with earned revenue, increase visibility, distribute useful knowledge, and sometimes create employment or local economic opportunities.
Product sales are not automatically stable, unrestricted, or profitable. Organizations should examine mission fit, demand, full cost, working capital, competition, taxes, product safety, consumer protection, intellectual property, technology, accessibility, and operational capacity before investing substantial resources.
For tax-exempt organizations, product sales also require attention to unrelated business income. A regularly carried-on trade or business that is not substantially related to the organization's exempt purpose may generate taxable unrelated business income even when the profits ultimately support charitable programs.
Develop products through research, testing, iteration, quality assurance, and appropriate regulatory review. Regulated products - including some medical, health, food, children's, and safety products - may require specialized expertise before they can legally be produced or sold.
Marketing should be truthful, evidence-based, accessible, and appropriate to the audience. Endorsements and reviews should be genuine, and material relationships should be disclosed.
Online sales require more than placing a product on a website. Organizations need accessible digital storefronts, secure payments, privacy practices, inventory management, shipping, customer service, returns, refunds, and reliable accounting systems.
Finally, evaluate the venture continuously. Measure net contribution rather than gross sales, monitor customer and mission outcomes, and be prepared to redesign or end a product when it no longer provides sufficient financial or community value.