Can a Nonprofit Charge for its Services?

Can a nonprofit charge for its services? During difficult economic times – like the global COVID-19 pandemic – this is a question we get often. The answer is yes, but as with all fund development planning, this should be undertaken with great care. (*Note – we always recommend diversifying your funding streams! Fee for services should only be one piece of your overall funding plan. Learn more about this in our free fundraising toolkit and blog). 

Did you know? 80 cents of every dollar of nonprofit revenue in the United States comes from government grants or contracts and fees for service.

A fee-for-service structure means fees are paid in return for services delivered. Nonprofits can use fees for service and contracts to supplement their funding. Examples of this include charging for summer camp, child care, therapy, job training, etc. These services may charge an hourly or fixed rate.

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 make the call on what is included or not included, and there’s potential to have secure funding year after year.

However, there are some disadvantages to this funding model. Nonprofits must be sure to avoid negative tax implications, comply with applicable state and federal regulations, and provide careful fiscal management and accounting of 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 different rates/payment structures. Once identified, then 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, communicates the specifics of its added benefit, and clearly states the reason why it’s better than similar organizations. 

Community Need + Your Unique Value & Expertise = Potential Fee for Service Opportunity

There are many opportunities are out there for to set up 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 for a free consultation. If you’re not ready to make a call, check out our free resources to start diversifying and growing your funding streams.