So what’s a “reasonable” period of time to reach break-even? which is that point in time when the enterprise is generating enough sales from products or services to meet its operating costs and other variable expenses, but not yet earning a profit.
Depending on the complexity of the business model, the amount of capital needed to launch and other factors, the time to reach break-even might range from 8 to 18 months.
Non-profit organizations starting a social enterprise typically begin on a much smaller scale, so they generally get to break-even faster. Non-profits with modest resources are encouraged to set a maximum of 12 months as their target. With funding being more difficult to obtain today, it’s critical that non-profits reach break-even as quickly as possible.
Some factors that will affect reaching break-even:
- The effectiveness of your marketing strategy and sales efforts
- Maintaining adequate margins to cover Fixed and Variable Expenses and generate profits as sales increase
- Use of pro-bono skill-based volunteers from your community and sources such as Hands On or Taproot
- Outsourcing those functions which may not be your organization’s core competency e.g. accounting, IT
- Bootstrapping to minimize fixed expenses by identifying less costly options which can be scaled up as sales volume increases, e.g. office/production space
A Great Example of Bootstrapping
I’m currently helping a non-profit launch an organic farm as a social enterprise. This organization serves individuals with developmental disabilities, and the farm is creating vocational and educational opportunities for this population.
We began by farming on a quarter-acre of land this summer. We produced a variety of high quality organic vegetables as “proof of concept,” which was necessary to obtain additional resources and funding. With several more acres available, we will be scaling up production incrementally beginning in the spring.
How we did some bootstrapping:
- A local landscaping company volunteered to clear and prep the land free of charge
- We cleared and prepped only a quarter acre to test the model before expanding
- We recruited over 80 community and corporate volunteers to assist in a variety of ways
- We’re receiving pro-bono assistance from a master gardener referred by the U of I School of Agriculture to advise us on planting, growing and harvesting techniques and to help teach our disabled clients how to plant seedlings and nurture crops
Although we are at break-even, we won’t realize revenue and profits from selling produce to the public for another year. However, we have created enough healthy organic produce to supply the disabled in our client community, and we’re delivering on our mission by creating vocational opportunities and improving the lives of the people we serve.
My next post will cover Critical Success Factor #8: Your Social Enterprise should create greater visibility and market awareness of your nonprofit’s brand
So stay tuned, and please post your comments or questions!