Can nonprofits charge a fee for services?
The short answer is, yes! In fact, revenue-generating activities can be a critical component of your effort to build a sustainable nonprofit organization. Many nonprofits have found ways to create a revenue stream that flows from their programmatic work. Examples include fees for membership, direct services, publications, and nonprofit-organized conferences and seminars.
The law sets no limits on the fees you can charge, although there are several factors to consider when establishing the fee for a particular service. First and foremost, the service being offered must be related to your mission. Otherwise, the revenues should be reported as unrelated business income.
You should also consider the environment in which a fee is being charged. Factors such as the availability of philanthropic or sponsorship support, the full cost of the product or service, market prices for similar services, and your constituents’ ability to pay should be taken into account when establishing a reasonable fee.
To set fees for service, follow these easy steps:
- Prioritize your objectives in charging a fee. Why do you need to charge for this particular product or service?
- Determine the service unit cost.
- Survey the market price of similar goods and services. What are your competitors charging?
- Determine a percentage of costs to be recovered by fees. How much do you need to make to cover your costs?
- Define the fee structure and discounts. For example, will you offer discounts based on a sliding scale?
- Assess the target market’s reaction to the fee. Test your pricing with your constituents.
- Adopt a fee policy. Use this policy moving forward with additional products and services.
- Develop implementation/collection procedures.
- Evaluate and revise, as appropriate.
Adapted from: Charging a Just Fee: A Guidebook for Nonprofit Organizations, by Walter Moreau.