Determining the Optimal Donation Acceptance Policy for Nonprofit Stores
Abstract
Many nonprofits derive a considerable amount of their financial support from the resale of donated items. Given the razor-thin margins at which many of these organizations operate, it is critical that they maximize the proceeds that come from the sale of these items. To do so, nonprofits require policies that guide their donation acceptance decisions so as to optimize revenue generation. This article presents research about how to determine the optimal donation acceptance policy for Habitat for Humanity. Habitat affiliates sell donated material at their ReStores, or discount home improvement centers, and the revenue from the ReStores directly supports the building of new homes. Several constraints limit the revenue that the ReStores derive from the donated items, including the supply rate of items from donors, the demand rate of items from customers, and the space limitations of the ReStores. We developed a two-step method to determine the optimal acceptance policy-the daily amount of donations to accept to maximize revenue. This approach increases revenue by up to 20 percent and additionally provides insights into pricing options, marketing strategy, and optimal store size.