Social Enterprises have to be innovative about their revenue models. There is an imperative to marry profit making with impact and a balance between the two can be hard to find.
Two examples of different revenue models in social enterprises are Redemption Roasters and For Change Co. Both have impact but they take very different routes to getting there. We spoke to Levi Fernandez, Head of Impact at Redemption Roasters and Co-Founder and Director at For Change Co., to better understand how these social enterprises can work.
A Business Making Impact
Redemption Roasters, a private limited company based in London, work with people currently serving sentences in prison to provide them with skills and employment experience. Primarily, they are a for-profit company with their profit being reinvested in their work which delivers social impact. Their main roastery is based in HMP The Mount and they run barista training for inmates at other prisons.
As well as the profit made from selling and making coffee, they are also able to access commercial investment. When the organisation was first established, it was done so to be a profit-making entity with an impact model associated with it.
A Business Supporting Impact
On the other hand, there is For Change Co., an organisation explicitly set up to have an impact, which is then bolstered by any profit they might make. They are based in Australia and work with young people at risk of homelessness.
The organisation was established to make a difference in the lives of the people they worked with, rather than to bring in any kind of profit. While they might not be as commercially successful as Redemption Roasters, they have a robust and effective impact model.
Why does it matter?
For any social enterprise, finding the balance between impact and revenue is difficult. One will allow the organisation to grow but the other needs to be maintained to meet the original aims of the organisation.
1.Expectation within the philanthropic space
There is an expectation within the philanthropic space where grantholders should be able to generate revenue for themselves. Having a steady revenue stream, regardless of whether the business breaks even or not, shows funders that the charity is in a financially secure place and is not entirely dependent on donations
2. Being a touch point for the community
Every new organisation needs to build a reputation to bring in donations. This is especially hard when you’re up against well-established charities that have been around for decades. As a social enterprise, having venues where the community can see and touch the work being done, it is easier to build up a good reputation. This doesn’t always translate into donations but means charities can have a stronger mark within the community.
3. Flexibility in unrestricted revenue
Restricted grants from funders can often come with caveats and a need to meet the requirements of the funders despite the knowledge of the charities themselves. Having unrestricted funds to direct towards areas that don’t attract funding means that organisations have more freedom and flexibility to use those funds.
Advice for those getting started
Levi also shared some things to think about for anyone considering starting a social enterprise.
It’s important to reflect on your plans and understand the landscape you’re working in, as Levi explains; “First off, make sure that there is a gap that you are filling and you’re not just replicating a service as this would be inefficient use of resources. And secondly, create your impact model from the start so you have a clear idea of what the profit and process elements of the social enterprise will be.”
As part of this, it's also vital to engage with the people you’re seeking to help; “Especially if you’re working with a marginalised group, make sure that people with lived experience are at the centre of every decision-making process you have. If it's not possible to employ people in management roles than have an advisory panel of people to help achieve your vision.
Redemption Roasters and For Change Co. work in different ways but with a similar goal – to have an impact on those they are working with. Both are effective and both offer different revenue models that still allow them to have that impact.