Nonprofit Institutions
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Industry Overview
The US nonprofit institutions industry includes more than 1 million organizations with combined annual revenue of more than $1 trillion. Major organizations include Goodwill Industries, Ascension Health, National Cancer Institute, New York University, and the Bill & Melinda Gates Foundation. The industry is highly concentrated: large organizations with assets of $10 million or more represent just 6 percent of the industry but account for more than 80 percent of annual revenue.
Although technically distinct, the terms "nonprofit," "tax-exempt," and "charitable" are often used interchangeably. Nonprofits are sometimes referred to as "501(c)" entities, after the section of the Internal Revenue Code that defines their tax status.
Competitive Landscape
Demand is driven by the need to represent special interests or provide social services that can't be met by the market or government. Organizations receive nonprofit status because their primary purpose is religious, charitable, scientific, literary, or educational in nature. Their purpose must be to serve the public good versus a private interest.
The success of nonprofits often depends on efficient operations and their ability to match expenses with fluctuating revenues. Large nonprofits have advantages in fundraising due to strong name recognition. Small nonprofits can be successful if they serve a dedicated membership or have a dependable source of revenue. The industry is labor-intensive: the average annual wage for a nonprofit sector employee is about $35,000.
Products, Operations & Technology
Nonprofits are classified into nine service categories, including arts, culture, and humanities; education; environment; health; human services; international, foreign affairs; mutual, membership benefit; and religion related, according to the National Taxonomy of Exempt Entities (NTEE), developed by the National Center for Charitable Statistics. The largest segment in terms of revenue is health, which generates more than half of all revenue reported by charitable organizations. The largest category in terms of number of firms is human services, which accounts for 38 percent of all nonprofits.
Specific operations of nonprofits are defined by the types of services they offer. For example, the health segment includes hospitals, nursing facilities, blood banks, substance abuse treatment services, medical research groups, and organizations focused on the prevention and treatment of diseases. The human services category comprises organizations offering programs and services focused on specific community needs such as housing and shelter; job training and placement; public safety, disaster preparedness, and relief; recreation and sports; and crime prevention.
Grantmaking organizations (also called charitable foundations) are special types of nonprofits that give money to other nonprofits. About 110,000 of these organizations, with annual revenue of $83 billion (largely from investments), actively seek to give money away through grants by soliciting Requests for Proposals (RFPs) from potential recipients. Examples are the Bill & Melinda Gates Foundation, the Ford Foundation, the J. Paul Getty Trust, and the Howard Hughes Medical Institute. US foundations manage more than $500 billion in combined assets.
Nonprofit institutions' operations are typically labor-intensive. Though staffs likely include paid workers, the industry relies heavily on volunteers. More than 60 million Americans volunteer for nonprofits, donating nearly 13 billion hours annually, which is equivalent to 7.6 million full-time employees.
Nonprofits use technology to network with volunteers, members, employees, and donors; solicit online support and contributions; and manage financial, donor, client, and volunteer data.
