As you know, World History Encyclopedia is a non-profit organisation, and proudly so. Having a mission for the greater good and not answering to investors or shareholders allows us to focus on doing the right thing, not on revenue.
Revenue is always a secondary consideration for us. For example, last month we were approached with an opportunity to allow political advertising on our website, which we were told would increase our advertising revenue in the coming months due to the election in the United States this year. However, we turned down the offer as we take a strictly neutral and non-political stance, which is important to our mission.
Nevertheless, non-profit organisations (including ours) actually need to make a profit. This may seem counterintuitive at first given their name, but it is true: Without profits, a non-profit organisation will struggle to improve, grow, survive and ultimately fail to fulfil its stated mission and purpose.
What is a Non-Profit Organisation?
Before we dive into my argument, let’s examine what “non-profit” actually means. The precise definition is slightly different per country, but in most countries they are not defined by whether they make a profit or not, but rather what they can do with their profits.
In most types of “normal” companies, the owners can take the company’s profits and simply pay them out into their personal bank account as dividends. This is true for both privately-owned companies and those with shareholders, even though the rules and modalities are different. Essentially, the profits of companies can be used to enrich its owners. Additionally, owners can sell their company to someone else and make themselves and their investors rich, which is commonly the plan in a venture-backed startup company.
For non-profit organisations, neither of these are possible: Profits must be reinvested into the organisation and the organisation cannot be sold to third parties. The people controlling the organisation (directors or trustees) may be employed for a reasonable salary, but they cannot get rich by taking profits or selling the company.
The Argument for Profits
A non-profit organisation must be profitable to make an impact and serve its mission. Even though we started by running World History Encyclopedia exclusively on a volunteer basis until 2016, it was only when we started to make significant enough revenue to employ full-time staff that we were able to grow properly. Someone who can work full-time on advancing the mission is simply much more effective than irregular volunteers. Also, a full-time staff member can reliably manage volunteers as a contact person who is always available.
With growing staff, an organisation can increase its output, better serving its mission and achieving more of its goals. Some organisations may stay small and local, but at World History Encyclopedia we have a grand global mission and to get there we need to grow. We need to not only make revenue but we also need to be profitable which enables us to spend more money in the future. If we don’t have enough extra money coming in to afford a new staff member, we cannot hire them.
As organisations grow, their overheads also grow. In our case, particularly server costs have increased significantly since we started, due to greatly increasing numbers of people who used our website to learn about history for free. In 2010, our website served only 73,100 page views for which a server costing $100 per year was sufficient. In the last twelve months we served over 85 million page views, and our server costs have risen to $18,000 (for which we are currently running a fundraising campaign).
Finally, and probably most importantly, non-profit organisations need profits in order to safeguard their longevity. The year 2023 was a case in point for World History Encyclopedia. Due to the global economic slowdown caused by inflation and reduced spending, our advertising revenue shrank significantly and we also received far less money from donations and memberships than in previous years. This was not unique to us; the online publishing industry suffered in general and several large and well-known publishers including BuzzFeed and Vice declared bankruptcy last year.
At World History Encyclopedia, we made a loss in almost every month of 2023. Luckily, we had made profits in the previous years and had the foresight to build up cash reserves in case we hit hard times. Our cash reserves went from a peak of £204,919 ($264,423) in February 2023 down to £111,724 ($144,166) in February 2024, meaning we used up £93,195 ($120,256) –almost half of our cash reserves– in these twelve months of economic difficulty.
It is precisely because of our non-profit mission that ensuring the longevity of our organisation is at the core of our strategy. This means aiming to be profitable, reinvesting profits into growth, while at the same time retaining enough money to build cash reserves for tough times. Most small companies of our size do not hold that much money in reserve, and would have gone bankrupt last year. Our finances have since improved and we are profitable again, now rebuilding our cash reserves.
I cannot think of a better reason than survival for why non-profit organisations need to be profitable and need to retain cash reserves.
Is There a Better Name?
A non-profit organisation that does not make profits neither grows nor survives in the long term. If an organisation truly wants to make the world a better place, it must be profitable. The term “non-profit” is rather misleading and “non-enriching” sounds just odd.
The term “mission-driven organisation” is used more frequently these days, but it also includes B Corporations and Community Interest Companies that can pay dividends to owners and shareholders. We need a new word. Help me out: What would you call non-profits?
