Nonprofit organizations often struggle to raise money. Many look beyond donations to raise money and keep their missions alive.
But can nonprofits sell products? Yes, they can. But there are rules to follow. Nonprofits must understand tax laws, business income rules, and mission alignment.
This guide covers the legal side, benefits, and the best ways to start selling.
Best Website Builders for Nonprofits to Sell Products Online
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The Legal Framework for Nonprofit Product Sales
The information provided in this text is for informational purposes only and does not constitute legal, financial, or professional advice. The content is primarily directed toward U.S. citizens, who are advised to consult with relevant authorities or legal professionals before taking any action. Non-U.S. citizens should check with local authorities to ensure compliance with local laws.
Nonprofits selling products face confusing tax rules. Let’s simplify things so you can generate revenue without losing your tax-exempt status.
Understanding Unrelated Business Income (UBI)
The IRS separates income into related and unrelated to a nonprofit’s mission. Related income supports the organization’s mission and isn’t taxed. A theater selling tickets to performances is tax-exempt.
Unrelated business income (UBI) comes from sales not directly related to the mission. If a theater sells generic t-shirts unrelated to performances, it may owe taxes.
The key question: “Does this product advance our mission beyond making money?”
Unrelated Business Income Tax (UBIT)
When nonprofits sell merchandise that isn’t tied to their mission, they may owe UBIT. This tax applies at 21% on net income from unrelated activities.
If a nonprofit earns over $1,000 in gross unrelated business income (UBI), it must file Form 990-T along with Form 990. The deadline is the same as regular tax filings.
Some sales are exempt from UBIT, such as:
- Volunteer-run businesses
- Selling donated merchandise (e.g., thrift stores)
- Services for members or employees
- Sales for community benefit
State-Level Considerations
Nonprofits must follow state laws. Many states require nonprofits to collect sales tax, but some offer exemptions for certain groups or items.
Rules vary by state. In California, some nonprofit sales are tax-free. In New York, the rules are stricter. Check your state’s tax laws or talk to a nonprofit tax professional to stay compliant.
Legal Structures for Nonprofit Sales Activities
Nonprofits can sell products in different ways while keeping their tax-exempt status safe. The easiest way is through your 501(c)(3) if sales are directly tied to your mission.
For unrelated sales, starting a for-profit business can protect your nonprofit status while letting sales grow separately. Some groups use benefit corporations or L3Cs, which mix business and social goods.
Benefits of Product Sales for Nonprofits
Product sales offer numerous advantages beyond just additional revenue. Here’s how they can strengthen your organization.
Financial Sustainability
Grants and donations can be unpredictable. Selling products gives nonprofit organizations a steady income they control.
Many nonprofits sell merchandise to save money for tough times. For example, the San Francisco AIDS Foundation raises funds through branded merchandise sales with Macy’s, helping support its programs.
Mission Advancement
Selling products helps your nonprofit’s mission and raises funds. A literacy nonprofit can sell books. A conservation group can offer reusable bags. A job training program can sell handmade goods. Each one supports the cause while generating income.
Products create real connections. A custom water bottle from a clean water nonprofit reminds people of the mission with every sip. Educational materials spread your impact. Guides, toolkits, and online courses reach audiences far beyond your community.
Stakeholder Engagement
Selling products gives supporters new ways to get involved. Someone who can’t donate might still buy a product, knowing it helps your cause.
Branded merchandise turns buyers into ambassadors. A unique t-shirt or custom tote bag can spark conversations about your mission. Product sales also create volunteer opportunities. Volunteers can help with design, inventory, or event sales.
Organizational Growth
Selling products helps nonprofits raise funds for new programs without waiting for grants. This gives them more control and lets them grow based on community needs.
Creating and selling merchandise builds skills in marketing, sales, and business. Strong product sales increase brand recognition, helping nonprofits reach more audiences and donors.
Best Product Ideas for Nonprofits
Choosing the right products can make the difference between a successful sales program and a costly distraction. Here are proven product categories that work well:
Mission-Related Products
Selling products that connect to your mission builds support and generates income. A homeless services nonprofit might sell sleeping bag kits that buyers can donate back or keep.
Educational materials like books and guides work well for organizations with specialized knowledge. The National Wildlife Federation sells magazines, raising money while spreading awareness.
Products made by beneficiaries have a double impact—they provide income for both the nonprofit and those it serves.
Branded Merchandise
Branded merchandise is a great way for nonprofits to increase brand awareness. High-quality items sell better than cheap ones, so focus on quality over quantity.
Popular choices include t-shirts, tote bags, water bottles, and journals. Custom merchandise like limited-edition holiday ornaments can generate additional revenue. The World Wildlife Fund sells symbolic adoption kits with plush animals—supporters love them.
Regardless of merchandise, learn how to build a non-profit website so you can start selling online successfully.
Service-Based “Products”
Nonprofits can sell services by sharing what they know. Workshops and training turn skills into income. A domestic violence nonprofit might teach workplaces how to spot abuse. An environmental group could show people how to grow a garden.
Consulting services help nonprofits make money while helping others. Subscription services bring a steady income. Monthly kits, helpful tips, or expert advice keep supporters involved.
Digital Products
Digital products cost little to produce after the first creation. E-books, templates, and research reports can generate income for years with no extra costs.
Online courses help nonprofits reach new audiences and create steady revenue. Mobile apps can support a mission while earning money. The Audubon Society’s bird ID app helps conservation efforts and raises funds through sales and subscriptions.
Check out these non-profit website examples for inspiration.
Setting Up Your Nonprofit’s Sales Operation
Turning product ideas into reality requires thoughtful implementation. Here’s how to build an effective sales operation.
E-commerce Platforms for Nonprofits
Nonprofits can start selling custom merchandise online using platforms like Shopify and WooCommerce. Shopify offers discounts, while WooCommerce works with WordPress.
A good e-commerce system connects to your website and tracks customer activity. PayPal, Stripe, and Square offer lower fees for nonprofits.
A smooth website improves checkout and boosts sales, helping your nonprofit raise money and reach more supporters. Fast, secure hosting is a prerequisite for a smooth web store. Let us help! Check out our comparison guide if you need help choosing the best web hosting.
Physical Sales Channels
Pop-up shops at community events let nonprofits test products with little risk. Festivals, fundraisers, and conferences are great places to sell items and connect with supporters.
For bigger operations, brick-and-mortar stores may make sense. Some nonprofit organizations open gift shops or partner with local stores to sell merchandise.
Consignment deals with bookstores, cafes, or gift shops help generate revenue without big upfront costs.
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Marketing Your Nonprofit’s Products
Good marketing helps nonprofits sell products and raise money for their cause. The best way? Tell a story. Show how each product supports your nonprofit’s mission and makes a real impact.
Start with loyal supporters. Use email, newsletters, and direct outreach before reaching new audiences.
Use social media platforms to showcase products. Share behind-the-scenes content, success stories, and real-life impact.
Potential Pitfalls and How to Avoid Them
Being aware of common challenges helps you navigate them successfully.
Mission Drift Concerns
Selling products can sometimes distract from your nonprofit’s mission. Set clear rules to ensure items align with your cause. Review your product lineup often to stay on track. Form a review team with staff and beneficiaries, not just marketing or fundraising members.
Financial Risks
Selling products costs money before it makes money. Start small. Test ideas with a few items before spending more. Figure out how many you must sell to cover costs. Drop items that don’t sell well.
Brand and Reputation Management
Your product’s quality reflects your nonprofit’s values. Cheap, poorly made items can hurt your reputation. Work with reliable suppliers, even if it costs more. Be clear about where the money goes.
Conclusion
Selling products helps nonprofits make money online while supporting their mission.
To succeed, follow tax laws, choose mission-related items, and plan your sales strategy. Start small, test ideas, and stay focused on your cause.
With the right approach, product sales can provide steady income and strengthen your organization’s financial health.
Next Steps: What Now?
- Set Up an E-commerce Store: Choose an e-commerce platform to sell trending products.
- Choose the Best Hosting: Pick the best web hosting for nonprofits that supports organizations with affordable options.
- Promote Your Products: Use social media to share your nonprofit’s mission and reach audiences.
- Consult a Tax Advisor: Work with a tax professional to handle tax laws.
