4 types of business models for starting a social enterprise

Working on a social impact project but don’t know which business model to choose? You’re not alone! How can you cover your costs and salaries when your project is aimed at people living in poverty? One of the greatest challenges in an impact project is finding a viable business model that will allow you to strike a balance between social mission and financial viability.

In social entrepreneurship, your business model is what makes it possible to provide value and have a positive impact on society, on one hand, and generate income on the other. That income will go toward paying yourself a salary and reinvesting the profits generated by your social enterprise to multiply your impact. Don’t fret, it’s possible! We’ve selected 4 types of financial models in this article to help you plan yours.

Model 1: the same customers and beneficiaries

This is the easiest model to implement. In this scenario, your beneficiaries and customers are the same segment. That being said and like for any other business, your beneficiaries need to be able to pay for what you are offering. Therefore, it’s important to have a clear idea of your potential customer and beneficiary segments.

Ask yourself this:

• Who are my beneficiaries, meaning the people who are directly impacted by my solution?
• And who are my customers, the people who pay for my solution?
• Are they both the same, or two different segments?

A great many companies use this model: fair-trade and local beauty products, eco-responsible clothing promoting short supply chains, local product boxes, etc.

Let’s take a look at 1083 (website in french): a brand that manufactures jeans in France, under 1083 kilometers from their headquarters. Or a more local example, Les Chocolats du Coeur (website in french), a solidarity-based brand selling artisanal chocolates made by people with disabilities. In these two examples, the beneficiaries of the products are both the buyers (who pay for the product) and the direct beneficiaries.

Model 2: an offering at no cost to beneficiaries

In this model, it’s your customers who pay to give beneficiaries access to your offering (products or services). Clearly, in this case, your beneficiaries are not in the same segment as your customers.

To illustrate this type of financial model, we’ll use the very simple example of the app Talki. Its goal is to ease communications for people with autism. They access the solution at no cost as it is either the families or host organizations who pay. Identifying the target who will cover the cost of the solution is essential in this model!

Model 3: differentiated pricing

This model is widely used in the field of social entrepreneurship. Here, you have two types of customers. You offer them the same thing, but with differentiated pricing depending on their resources. In other words, you charge some customers enough to be able to offer your products to others who wouldn’t be able to afford them otherwise. An example to illustrate this model: at Eis Epicerie (website in french), customers buy local fair-trade products at a set price, which funds the possibility for customers receiving Social Welfare to purchase the same products at lower prices.

Managing customer segments can be a challenge for a social enterprise: you have to meet not only the needs of your customers, but those of your beneficiaries, too. The customer segment that lets you address the beneficiary segment needs to find a good balance.

Identifying who would see an interest in your beneficiaries being able to access your product or service and be willing to finance it is crucial. Who are the indirect beneficiaries of your project who could potentially convince an organization or community to fund it? For instance, reducing the number of people on unemployment, avoiding the use of plastics in a project aimed at waste reduction, etc. What makes you legitimate and what is your added value? Remember to factor in the “costs” for society relating to the consequences of the identified problem in its broad sense (the cost of providing for the unemployed, etc.) and of course the profit you will bring everyone in the end.

Model 4: differentiated offerings  

In social entrepreneurship, it’s common to see hybrid models: entrepreneurs who choose to have two very distinct offerings or even two separate yet interconnected structures, one for-profit and one non-profit. Meet my Mama is a French company that uses a similar model. They have two types of offerings for two different targets. On one hand, a catering service, and on the other, accompaniment for women to receive training and live from their cooking passion.

Luckily, the creation of Societal Impact Company accreditation provides an enabling environment for implementing business models that allow entrepreneurs to stay close to their social mission, while generating a profit.

So, as you can see, in order to find a viable business model as a social entrepreneur, you need to be inventive, leverage hybrid resources and look into innovative solutions. And although it can be a challenge at first, finding a business model that fits your needs and activity is possible.

Just to make sure you’re convinced, we recommend listening to the story of how Simplon came to be. In the podcast (in French), the founder tells how the company succeeded in building an inventive and sustainable business model.

Stock up on concrete and flexible resources on entrepreneurship here!

To take things a step further…

(1) 1083  website in French