Should Your Nonprofit Charge Its Beneficiaries?

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Strategy & Business Model Section | 1

Should Your Nonprofit Charge Its Beneficiaries?

By Marco Bertini et al., | Harvard Business Review Magazine | January–February 2024 Issue

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Leaders of nonprofits are never short of creative ideas about how to improve the lives of disadvantaged people. Yet the simple truth is that nonprofits that rely on donations and grants usually can’t keep up with their ambitions for growth. Funding from individuals and institutions is time-consuming to raise and unpredictable and often has a lot of strings attached. One powerful way to bring in more money and increase impact is to add a more “commercial” approach to the mix—that is, to charge for what the organization would otherwise provide for free.  Paying even minimal prices can empower beneficiaries to demand results and, in turn, force nonprofits to deliver on their promises.

Asking beneficiaries to pay for services could appear uncharitable to someone and may fear that even small fees will block the people most in need from getting aid. They may also worry that a commercial approach could, over time, push nonprofits into caring more about making money than about making a difference. But those fears are driven by a misconception about what impact is and how charging prices can help.

Focus on situations in which beneficiaries have disposable income and can afford to pay at least a nominal amount. The revenue generated by the fees then goes directly back into providing the low-cost service to even more people. We have also found that paying a fee gives beneficiaries a sense of ownership, which boosts engagement and, in turn, helps reduce expenses and improve operations.  Nonprofits should work with their beneficiaries to find payment models that are affordable but substantial enough to subsidize operating, technical support, and long-term maintenance costs.

When you’re formulating or adjusting your nonprofit’s model, then, consider the following three best practices.

1. Don’t treat beneficiaries as a single entity.  First, the solution delivered can be the same, but prices can vary according to some observable characteristic. Second, the solution itself can vary in ways that allow beneficiaries to select the attribute-price combination that makes the most sense for them.  
2. Educate your beneficiaries about your solutions. 
3. Nonprofits and beneficiaries must share accountability.

3 key takeaways from the article

1. Leaders of nonprofits are never short of creative ideas about how to improve the lives of disadvantaged people. Yet the simple truth is that nonprofits that rely on donations and grants usually can’t keep up with their ambitions for growth. Funding from individuals and institutions is time-consuming to raise and unpredictable and often has a lot of strings attached. 
2. One powerful way to bring in more money and increase impact is to add a more “commercial” approach to the mix—that is, to charge for what the organization would otherwise provide for free.  Asking beneficiaries to pay for services could appear uncharitable to someone. But those fears are driven by a misconception about what impact is and how charging prices can help.
3. When you’re formulating or adjusting your nonprofit’s model, then, consider the following three best practices.  Don’t treat beneficiaries as a single entity. Educate your beneficiaries about your solutions.  Nonprofits and beneficiaries must share accountability.

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Topics:  Non-profit organizatinos, Strategy, Business Model