Do nonprofit organizations have the right to charge for the services they provide? We often receive this question during difficult economic times, such as the global COVID-19 pandemic, which is a question we receive quite frequently. The answer to this question is yes, but it is important to undertake this process with great care, as it is with any fund development planning exercise. Please note that we always recommend diversifying your funding sources to achieve success. The fee for services should be only one component of your overall funding plan. Learn more about this in our free fundraising toolkit and blog).
Did you know? Eighty cents of every dollar of nonprofit revenue in the United States comes from government grants or contracts, and fees for services.
In a fee-for-service structure, fees are paid in return for the services that have been provided. As a means to supplement their funding, nonprofits may be able to use fees for services and contracts. A few examples of this type of charging include summer camps, childcare, therapy, and job training. These services can be charged on an hourly basis or a fixed fee basis.
Getting paid directly for what your organization is already doing to fulfill its mission also confirms that your work has the outcomes that people value. You get to set the rate and decide what is included or not included, and there’s potential to secure funding year after year.
However, there are some disadvantages to this funding model. Nonprofits must ensure they avoid negative tax implications, comply with applicable state and federal regulations, and provide careful fiscal management and accounting for fee-for-service and contractual activities.
Use Your Data
Consider these steps to determine if a fee-for-service model is a good fit for your organization:
- Review your programs and services to see if they can be monetized.
- Complete market research to see if other organizations in your industry charge for their services and have different rates/payment structures. Once identified, determine if that model could work for your organization.
- Review your financial statements to see if you have a good understanding of your costs for services to determine a potential rate or fee structure.
- Reflect on your clients to see if offering a fee-for-service option will help increase your reach or limit engagement.
Pro Tip: Spend time defining and clarifying your organization’s value proposition or an easy-to-understand reason why someone should pay for your service. Your value proposition should clearly explain how your organization fills a need, communicate the specifics of its added benefit, and clearly state the reason why it’s better than similar organizations.
Community Need + Your Unique Value & Expertise = Potential Fee for Service Opportunity
There are numerous opportunities available to establish fee-for-service or contract service structures for your nonprofit organization. Need help thinking outside the box? We would love to brainstorm options! Contact us today to schedule a complimentary consultation. If you’re not ready to make a call, check out our free resources to start diversifying and growing your funding streams.
