Nonprofit Business Modeling

Defining the nonprofit business model and ooking at how nonprofits have used them to combat crisis.

key ideas

The concept of business models first emerged in technology-focused business sectors in the 19th century. The definition of a business model (and what makes one good) has changed often, but scholars generally agree that they:

  • Identify customer base(via either social or utilitarian motivations

  • Outline methods for production

  • Identify metrics for success

Currently, business models are most often understood as a description of how a business sustains competitive advantage. They describe the value logic of an organization in terms of how it creates and captures customer value (Fielt, 2014).

Nonprofits are socially driven, meaning their value is not defined solely in terms of profit.

BUT nonprofits still exist in a for-profit market!

At the end of the day, just like a for-profit organization revenue needs to exceed the cost of services or they risk closure.


So, how have scholars discussed business models so far?

Scholars all seem to define the purpose of a business model slightly differently, each basically using the term to define a framework that describes how an enterprise conducts business. Most also agree that business models are provisional, largely created through trial-and-error, and meant to fluctuate with the organization.

The following definitions & scholars pop up regularly in literature surrounding business modeling; they define business models as:

But what does this all mean for nonprofits?

Nonprofit business models tend to emphasize a social purpose rather than generating a profit.

This purpose conflicts with the fact that nonprofits exist/compete with (and are therefore predominantly modeled after) for-profit businesses. At the end of the day, their books have to balance just like a for-profit business’ (Topaloglu et al., 2018).

Nonprofits must strike a balance between mission accomplishments and fiscal responsibility (Chetkocivh & Frumkin, 2003)—this is why we often see nonprofits behaving like for-profit enterprises when it comes to business models (Dart, 2004).

Social purpose organizations (SPOs) often work parallel to nonprofits and struggle with the same social-to-economic purpose shift. These organizations also tackle social problems but are typically linked to some for-profit enterprise (Cooney, 2012).

Key differences in nonprofit business models:

  • Financial support is spread amongst many different sources

  • Support does not come solely from people who tangibly/transactionally benefit from the business (like investors or customers do)

  • Volunteer labor reduces expected (or allowable) labor expenses

  • The value of the product doesn’t always match the value of the investment