Grow financial sustainability with a fee-for-service model in your nonprofit
Thinking about setting up a fee-for-service model for your nonprofit? Here's a step-by-step guide to help you get started.
1. Identify a market for your goods or services
Who will purchase the goods or services to be offered by your nonprofit? This requires a market analysis and a business plan.
2. Know the rules
Make sure you're aware of and following all regulatory and professional standards, whether it's for selling prepared food or offering college classes.
3. Develop a sustainable fee structure
Fee-for-service nonprofits typically use one or more of the following types of fees:
- Mandatory: stated price for a product, service or admission to an event
- Voluntary: requested or suggested donation
- Membership: monthly or yearly payment in support of an organization
- Hybrid: some combination of fees
4. Research all potentially applicable taxes
For nonprofits, income from fees must be applied directly to the mission. If your nonprofit earns too much money, you might be subject to Unrelated Business Income Tax.
5. Budget for all administrative and overhead costs
Fee-for-service nonprofits necessarily incur some overhead expense, whether that's purchasing wholesale goods for resale, paying rent or maintaining equipment. Make sure to keep those overhead costs to a manageable percentage, so that a significant amount of revenue remains dedicated to the mission.
6. Define success in a particular marketplace — and know how to measure it
Is success defined as sustainability over a period of years? A percentage of income dedicated to mission? Remember also the importance of success in the marketplace — creating satisfied, loyal customers. However you define success, make sure your plan includes a strategy for measuring and reporting impact.