What are the basic difference between non profit and profit oriented marketing

Have you ever wondered what exactly is the difference between for-profit and nonprofit organizations? As suggested by their names, it is easy to understand that the main difference is connected with the profits of these organizations. However, it has nothing to do with whether they make profit or not, but rather with the following: 

Purpose

All organizations have a purpose, but one of the biggest differences profit versus nonprofit organizations have lies in the fact that for-profit organizations’ primary mission is to generate profits for personal fulfillment. They do this by creating and selling products and/or services. 

On the other hand, the main goal of a nonprofit organization is to make profits for serving society. They promote a social cause by offering assistance with basic human needs. Nonprofits aim to tackle challenges and solve important issues such as alleviating poverty, providing education, food and water, assisting with housing, protecting endangered species and/or the environment, etc.  

Funding

Providing funds is the basis of all successful operations and projects. The seed capital of for-profit organizations is provided by the founders or business owners, by bank loans, investors and revenues generated from sales of their products and services.

Nonprofit organizations use a different approach. They seek both private and corporate donations of time, material, products, and money. Government grants are also used for funding the operations of nonprofits, together with crowdfunding. 

Target Audience

When looking at for-profit vs. nonprofit organizations, the diversity of the audience is another key difference. While for-profit businesses have a more precisely defined target audience, that is usually not the case with nonprofits. While for-profit organizations try to establish a relationship with clients who buy their products and services in order to generate revenue, the nonprofit ones seek to reach a more diverse audience including volunteers, corporate sponsors, donors, and the general public. Therefore, nonprofits need to take into account the different interests of each segment of their audience.

Management

A for-profit organization can be a privately held business or a large corporation with boards and stakeholders. Responsibilities are distributed among individuals or a group that takes part in the financial success of the business. Since for-profits are primarily focused on increasing revenue, not only do these for-profit leaders share responsibilities, but they often share financial incentives.

Nonprofits, on the other hand, are mostly led by trustees, a board of directors or committee members that do not have direct financial ownership. Their main concern is not about financial success, but about social and/or environmental issues. 

Organizational Culture

For-profit vs nonprofit organizations differentiate in their organizational cultures. Since for-profits tend to focus on the financial gain, they value employees who contribute to the creation of new products and services, as this can help increase revenue. 

Nonprofit organizations, on the other hand, are community-oriented. Their employees are often seen supporting the cause outside their regular schedule attending events or handing out informative and educational resources to local businesses in the evenings or on weekends.

Taxation 

Since for-profit companies make profits for their own benefits, they have to pay taxes as required by the law. However, nonprofit organizations are exempted from paying taxes as they make profits to help society. In addition, individuals and businesses that donate to nonprofits can claim tax deductions.

If an organization is a nonprofitable entity, that does not mean it cannot be profitable. Just like for-profit organizations, the nonprofit ones very often have the same approach to generating revenues and increasing profits with the aim of creating more programs or improving the existing one(s). However, the difference between a for-profit and nonprofit organization is that the latter is required to reinvest any profit in pursuit of its purpose.

The basic aspect, which bifurcates business organisation is the purpose of their operation, i.e. not all organisations work for the profit motive; rather there are some entities whose aim is to serve the society first. This way, there are two major types of organisation, which are profit organisation and non-profit organisation.

So, this article attempts to clarify the differences between Profit and Non-Profit Organization.

Content: Profit Organization Vs Non-profit Organization

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Definition of Profit Organization

Any business entity, whose primary aim is to generate profit from the regular operations, with a view to maximising the wealth of owners, is called as a profit organisation. The profit earned by such entities is either retained in business, for future contingencies, in the form of reserves or distributed to the owners as the dividend.

The business structure can be a sole proprietorship, partnership, Hindu Undivided Family, joint venture or company. Such trading concerns strive continuously for minimising expenses and maximising income to increase the profit of the business, to grow and expand. They need to maintain their books of accounts for tax and auditing purposes. Further, the tax is charged on the business profits at a flat rate.

Definition of Non-Profit Organization

A non-profit organisation, as the name suggest is a legal organisation whose primary purpose is to promote public good rather than making profit. These are founded by a group of people who come together for a common purpose, i.e. to provide service to members and people. The managing committee looks after its management which consists of a group of individuals, chosen by the members from among themselves. They are aimed at endorsing a social cause or supporting a particular outlook.

These include the sports club, public hospitals, religious institutions, cooperative societies, literacy society, etc. Non-profit organisations also make the profit, but the profit earned by it is used for furthering the aim of the concern. They raise funds from subscriptions, donation, government grant, membership fee, entrance fee, legacies, charity and so on.

The differences between profit and non-profit organisation can be drawn clearly on the following grounds:

1. A profit organisation is defined as a legal organisation, which is operated with the sole aim of earning profit from the business activities. On the flip side, a non-profit organisation is one that is operated with the primary objective of benefiting the society as a whole.
2. A profit organisation, as its name suggests, works for profit maximisation of the concern. As against this, a non-profit organisation works for providing service, for the well-being of the society.
3. A profit organisation can be a sole proprietorship, partnership or a body corporate, i.e. company whereas a non-profit organisation is an association of person, which can be a club, trust, public hospitals, cooperative society, etc.
4. The management of a profit organisation is overlooked by a sole proprietor in the case of sole proprietorship, partners in case of partnership and directors in case of company. On the contrary, there is the board of directors, trustees, committees or governing bodies who look after the management of a non-profit organisation.
5. The major source of income, for a profit organisation, is from the sale of goods and services. Conversely, the non-profit organisation, derive a considerable part of their income from donation, subscription, membership fee, charity and so on.
6. When it comes to the commencement of the entity, a huge amount in the form of capital is brought in by the owners to run the business. Unlike, the non-profit organisation, raise funds for commencement, in the form of contribution through donation, grant, legacies, subscription, etc.
7. The financial statement of a profit organisation includes the income statement, balance sheet and cash flow statement. In contrast, the non-profit organisation prepare receipt & payment a/c, income & expenditure a/c and balance sheet prepared at the end of accounting year to know their financial position.
8. Money earned over and above by the profit organisation, i.e. profit, is transferred to the capital account. On the other hand, the excess of income over expenses results in the surplus which is transferred to the capital fund.

Conclusion

Profit organizations differ from the non-profit ones in a number of ways, such as their procedure of fees for creation, tax benefit allowed to non-profit organisation but not to their counterpart for promoting public service, profit organisations are traded in stock exchange, ownership of a profit organisation lies with the shareholders but non-profit entities are not owned by any person, not even by the founders.