Economic sustainability

Here you will find the insights into revenue streams, costs and approaches to managing profitability found in ecopreneurial ventures.

Revenue steams

Characteristic of most ecopreneurial ventures is that they rely on stacking multiple revenue streams. These often result from different activities that target specific aspects of their mission and are aligned with a unique value proposition. Sources of revenue can come from:

  • Sales of products and services
  • Grant funding
  • Sale of waste products

Considerations for selling products and services in mission driven ventures

Sales of products and services were commonly found to be the primary source of income for ecopreneurial ventures. Selling in a mission driven venture however requires to match the pricing strategy with the purchasing power of beneficiaries that the mission targets. The following pricing strategies are found in ecopreneurial ventures:

Target pricing

Setting prices in accordance with purchasing power and willingness to pay of a certain customer group. This strategy allows for cross-subsiding e.g. selling sustainable food at premiums to customers who can afford it, to fund making the food available at discounted prices for customers who cannot afford it.

Calculating the total cost of a product and adding a percentage mark-up. This works equally with production and procurement cost. It is mostly used to give suppliers a fair price and then add the mark-up necessary to keep one’s own operations running.

Cost-plus

Market-based

Setting prices in accordance with competition or the price found on the market. Considering the market-price is often helpful when one’s own costs on a product-level are hard to estimate, and no other reference exists. Further, the market-based approach needs to be taken into consideration to prevent setting prices too high.

Grant funding

Grant funding can be available from public bodies for certain value driven activities such as social community projects or environmental conservation efforts. Grants can greatly support the economic sustainability of a venture, especially during the start-up phase. Grants can sometimes also be used to develop products or services and help the venture establish itself. Existing ecopreneurial ventures can use grants to grow their mission and offer new activities or reach a new beneficiary group.

Sale of waste products

Waste is a big problem in ecologic sustainability, because it uses resources and energy unnecessarily and therefore emits CO2 that could be avoided. However ecopreneurs have found ways of adding value to waste and turning it into a new resource. Further explanations about how this is done are provided in the ecologic sustainability section. Finding value for waste and using it as a new resource adds a new revenue stream to the ecopreneurial venture and helps improve the venture’s economic sustainability.

Costs

One of the biggest fixed costs commonly found are the human resource and labour cost. Human resources are needed in all aspects of running the organisation, but often the largest proportion of the cost comes from labour intensive production. The following measures help reduce the cost to support a venture’s financial viability:

  • Offering volunteering and training opportunities to beneficiaries of the social mission. E.g. having former addicts or long-term unemployed work on farms to reintegrate them into the job market.
  • Finding activities that engage and develop the volunteers whilst helping the organisation run their operations.
  • Being mindful that a fair social value is created for the beneficiaries in return for their work, to avoid exploitation of free labour.

Another big cost driver ecopreneurs face is the mark-up for sustainable products. Often products that are produced locally and/or organically are more expensive than their unsustainable counterparts.

“At times ecopreneurs consciously pay above the market price for sustainable products to help their suppliers improve their sustainability.”

However ecopreneurs are found to take on the additional cost and willingly pay the mark-up to further support their suppliers sustainability. At times ecopreneurs consciously pay above the market price for sustainable products to help their suppliers improve their sustainability.

Interestingly sustainable production itself is not necessarily more expensive than unsustainable production. Organic farming for example requires fewer input factors such as fertiliser, antibiotics, etc. which reduces the variable cost. The higher product prices therefore are a result of smaller production quantities, which means that the fixed cost cannot be spread over a large output.

Profitability

While profit maximisation is not characteristic of the goals in ecopreneurial ventures, they need to remain financially viable to operate. There is ample evidence in research that ecopreneurs start their ventures to pursue their mission and mostly aim to make a living from it. With regards to the profitability of ecopreneurial ventures there are two dominant approaches.

Make a profit to sustain the mission

The venture runs profitably and covers its operational expenses, which separates it from a philanthropic organisation or a charity. Unlike in commercial businesses however all profits will be reinvested into the venture to support the mission.

The ecopreneurial venture is split into a business unit and a social venture. The business venture aims at increasing ecologic sustainability from their trading. The profits from the business venture are used to support the social activities.

Using cash from the business venture to fund value driven activities

These approaches to profitability clearly differentiate ecopreneurial ventures from commercial ones, as they prioritise sustainability over shareholder profits. This has further implications for the social and environmental activities ecopreneurs engage in, because they go beyond typical win-win scenarios.

© Niels Robert Schneider 2020