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In the world of social entrepreneurship, social enterprise business models determine the sustainability of innovative solutions. Furthermore, social enterprises must implement effective revenue strategies in order to build successful business models.
In this comprehensive post, we will examine 10 revenue strategies that provide foundations for successful social enterprise business models.
First, let’s establish some common definitions…
What is a social enterprise?
Although many definitions of social enterprise exist, Social Sector Network proposes the following one:
A social enterprise is an innovative organization that uses business methods to address social, environmental, and/or cultural issues.
– Social Sector Network
Based on our definition of social entrepreneurship, this social enterprise definition emphasizes innovation around societal issues. Although they apply business methods, social enterprises do not necessarily need to be corporations. They can use a variety of legal structures, covering the spectrum from non-profit to for-profit.
What are social enterprise business models?
In order to operate successfully, a social enterprise must establish a consistent framework around its objectives and activities. This consistent framework, called the social enterprise business model, dictates the long-term sustainability of the social enterprise. Social enterprise business models typically include the following elements:
- Mission Statement
- Customers/Beneficiaries
- Value Propositions
- Channels
- Customer/Beneficiary Relationships
- Revenue Streams
- Key Activities
- Key Metrics
- Key Resources
- Key Partnerships
- Cost Structure
How can social enterprises make money?
No social enterprise business model is complete without a money-making strategy. While external funding may occasionally be available, social enterprises must generate revenue in order to sustain their operations over the long term. Social enterprises cannot have viable business models unless they successfully identify and establish revenue streams.
Based on the University of Cape Town’s Innovative Finance course, the following 10 social enterprise revenue strategies will spark your social entrepreneurial imagination…
10 Revenue Strategies for Social Enterprises
Revenue Strategy 1: Data
Businesses naturally collect data on their customers and users. Similarly, social enterprises collect data on the populations that they serve.
While this data is useful for internal business decisions, it can also be sold to third parties. Many large tech companies, such as Facebook and Google, use business models that revolve around the sale of user data to advertisers. Due to growing privacy concerns, businesses must remain cautious when selling data. Laws, such as GDPR in the European Union, make data monetization an increasingly complex issue. We highly recommend consulting lawyers before engaging in such activities.
If social enterprises choose to sell data, they can focus on microdata or macrodata. Microdata, such as individual credit histories, relates to the behaviors and characteristics of the populations that a social enterprise serves. Macrodata, such as economic trends, relates to broader market and ecosystem impacts that the social enterprise tracks. Social enterprises can sell both types of data. However, different regulations may apply to microdata and macrodata. Different third parties may also be interested in different types of data.
Revenue Strategy 2: Consulting
When social enterprises develop niche areas of expertise, they may be able to perform consulting work. The process is quite simple. First, a social enterprise figures out how to perform a specialized service, such as supplying micro-loans to refugees. Next, they develop a replicable system for offering the service, potentially providing the service in multiple locations. Finally, they teach and/or license their system to other organizations.
If social enterprises choose to engage in consulting, they should take care to ensure that their work is mission aligned. For example, a social enterprise that makes micro-loans to refugees would probably want to teach their system to other refugee-oriented organizations. Applying their system to college students would not align with their mission. Although it may provide an effective way to earn money, teaching professors how to make micro-loans to students would probably not be an avenue worth pursuing.
Revenue Strategy 3: Business Assistance
In addition to data sales and consulting, business assistance is another way that social enterprises can monetize their knowledge. Social enterprises, especially ones focused on economic development, often work with other startups and SMEs. This presents an opportunity for social enterprises to engage in business assistance.
Forms of business assistance include due diligence, investment readiness, and business development. Since financiers need to thoroughly screen organizations before making funding decisions, social enterprises can often leverage their existing relationships with startups and SMEs to help financiers conduct due diligence. This usually includes providing data, as well as anecdotal intelligence. On the other side of funding transactions, social enterprises can help startups and SMEs prepare for investment. Both due diligence and investment readiness are valuable forms of assistance because mismatched expectations and information gaps often exist between parties involved in funding transactions.
Additionally, social enterprises can provide business development services, a category that includes a wide variety of offerings. Accelerators and incubators are prime examples of organizations that provide business development services. Their offerings typically include technical assistance, networking opportunities, facility access, mentor matching, funding access, and business process design. Social enterprises do not necessarily need to offer all of these services. However, business development services can act as an excellent mechanism for generating revenue and forming strong, enduring relationships with clients.
Revenue Strategy 4: Subscriptions
Subscriptions serve as a means for social enterprises to generate recurring revenue. Rather than making customers pay one-time fees, social enterprises can charge customers for products and/or services on a monthly or yearly basis. By using subscription-based models, social enterprises can make their offerings more accessible to low-income customers.
Recently, many tech companies have begun offering Software as a Service (SaaS). Enabled by the rise of cloud computing, SaaS enables customers to pay for the use of software on a monthly or yearly basis. Social enterprises have applied this framework in novel ways, such as offering Solar as a Service and subscription toilets. What other applications exist for subscription models?
On the other end of the spectrum, many social enterprises also offer Pay-as-you-go options, such as prepaid phone plans. When designing payment plans, it is critical for social enterprises to consider accessibility, flexibility, and responsiveness so that they can best serve their target populations.
Revenue Strategy 5: Education and Training
Education and training are extremely powerful ways for social enterprises to empower their target populations. In a basic education scenario, social enterprises recruit students, provide training, and connect them with employers. Typically, employers pay the social enterprises upon hiring students or after employing students for a predetermined amount of time. These arrangements may also include third-party payers and outcomes-based contracts.
Social enterprises can also provide training within organizations by up-skilling existing employees. These arrangements are often lucrative because they can be combined with other offerings, such as software sales. We will explore this possibility in our next example.
Revenue Strategy 6: Revenue Sharing
Revenue sharing offers a way for social enterprises to profit through partnerships. Continuing with the example of up-skilling employees, suppose that Social Enterprise A provides diversity training for Organization Y’s employees. If Social Enterprise B produces software to mitigate hiring biases, then Social Enterprise A could provide market access for Social Enterprise B by convincing Organization Y to use the software.
Since Social Enterprise A generated the sale for Social Enterprise B, Social Enterprise A would receive a commission on the sale. This is how revenue sharing works.
While market access is the most common case for revenue sharing, the framework may also be applied to financial and information transactions. Rather than demanding equity or interest payments, investors may provide capital to businesses in exchange for percentages of future revenues. Additionally, social enterprises could supply data, technology, or business services to other organizations in exchange for percentages of future revenues. In the most extreme cases, social enterprises may supply their branding, systems, and supply chains to other organizations in revenue sharing agreements. This is called franchising.
Revenue Strategy 7: Insurance (Risk Sharing)
Similar to revenue sharing partnerships, social enterprises can also engage in risk-sharing partnerships. This strategy becomes applicable when social enterprises position themselves to mitigate risks for insurance companies. If a social enterprise provides affordable vaccinations to low-income populations, then it probably mitigates a certain level of risk for health insurance companies, reducing costs for the insurance company.
The primary challenge with the risk-sharing model is identifying levels of risk mitigation and cost reductions, which often require long-term studies and diligent data collection.
Due to advancements in big data and financial engineering, risk sharing is becoming one of the most intriguing, high-potential areas within the social impact space. Outcomes-based contracts, such as social impact bonds, are rooted in risk sharing between the public and private sectors. Many social enterprises in the fintech space are also developing securitization mechanisms to expand financial inclusion in emerging markets. We will explore risk-sharing models in greater detail toward the end of this course.
Revenue Strategy 8: Leasing Programs
Leasing programs are a simple way for social enterprises to generate supplemental income with their assets. If a social enterprise takes out a loan to buy office space, it can purchase a building with extra space and rent out the extra space to other companies. Using the rental income, the social enterprise can pay back the loan, gain outright ownership of the building, and retain all additional income from rent payments.
This strategy is not limited to real estate. Social enterprises can use leasing programs to monetize almost all of their long-term, revenue-producing assets. If social enterprises possess extra equipment, such as tractors, they can rent out the equipment to farmers. Even intangible assets, such as patents and branding, can be licensed out for specific periods of time. Leasing programs may be the most underutilized revenue stream among social enterprises.
Revenue Strategy 9: Events
By hosting events, such as conferences and pitch competitions, social enterprises can generate revenue, spark collaboration, and position themselves as industry leaders. The two most common ways to cover event costs, as well as make profits, are selling tickets and sponsorships.
Although events can create income, their true value in the world of social enterprises resides in their ability to accelerate impact. Since events provide platforms for numerous organizations, they naturally improve visibility for up-and-coming ideas, issues, and problem solving methodologies. Events can be used to create consensus and unify organizations around common goals, which often result in powerful collaborations.
Revenue Strategy 10: Product and Service Sales
The final revenue strategy that we will touch on is the simplest of all. Social enterprises can sell products or services to customers in exchange for up-front payments. Although there is nothing sexy about this revenue strategy, it serves as an excellent starting point for most social enterprises to build upon. In fact, all of the strategies previously mentioned can be considered variations on traditional product and service sales.
If social enterprises start out with simple transactions, they are also likely to experience fewer difficulties raising early-stage capital than social enterprises with more complex revenue strategies. Investors prefer to put their money into systems that they understand. It helps when you can describe your business in one sentence. “We sell (product/service) to (target market) so that they can achieve (social impact).”
Revenue Strategy 11 (Bonus): Revenue Stream Mix
Before we conclude this post, it is important to note that social enterprises can mix, match, and blend revenue streams. Innovation occurs at intersections. How can revenue streams be combined to maximize profits and effectively solve pressing societal issues?
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