Balancing Money and Mission: 10 Tips for Introducing Fees in Your Nonprofit
Pricing Pointers, Issue #1 🍎
1 - Determine the feasibility of charging a fee
The crucial first step in developing a fee strategy is asking this question. Can you prevent non-payers from using your service? If not, you can't make people pay, so charging a fee isn't workable. Any questions about what fee to charge are irrelevant. Instead, you should explore alternative funding sources.
2 - Know your reasons for charging a fee
Fees are a tool that help an organization fulfill its mission. Organizations may charge a fee for both financial reasons and/or non-financial reasons. A clear understanding of their reasons helps organizations make informed decisions about fees. Consider your own reasons before charging a fee. Make sure it will help achieve your mission while promoting your financial health.
3 - Decide if charging a fee aligns with your mission and objectives
Thoughtful fees can help increase your financial resources, reach, and impact. But ill-considered fees create mission conflicts and barriers to accessing your services. Think about the potential benefits and drawbacks of charging a fee. Consider the total impact your fee will have. Will it help or hurt your ability to fulfill your mission and serve your community?
4 - Know which costs are relevant to your fee decisions
Identify the direct, avoidable costs of providing each program or service. These form the financial baseline for your fee decisions. Don't confuse these types of costs with indirect or overhead costs when setting individual fees.
5 - Explore different fee strategies beyond a uniform fee
Recognize your users differ in their ability and willingness to pay. You don’t have to charge everyone the same fee. Differential fee tactics allow for more flexible approaches to funding and service delivery. Using these tactics rests on two things. First, your ability to charge different users different fees. Second, the desirability of doing so. What will be the impact on your organization's finances, reach and impact?
6 - Understand the benefits of a differential fee strategy
Moving beyond a uniform fee lets your organization do two things at the same time. First, increase your revenue by catering to those willing to pay more. Second, increase your reach by offering more affordable options. But you will need to consider the practicalities of whatever approach you use. Questions about fairness also need to be anticipated.
7 - Use a tiered fee menu to implement a differential fee strategy
Give users a range of options at different fee levels. Then let each user select the option that best fits their needs and budget. This approach addresses differences in budgets and needs in a way users think is fair. This is because every user has the same opportunities to spend more for a better experience. Or to save money by spending less.
8 - Offer a less expensive alternative to provide an accessible entry point for price-sensitive users
Offer users a less expensive, yet still good, alternative. This will increase both your revenues and reach. You'll make your service more accessible to a broader range of users. Yet, you'll still receive at least some revenue from budget-conscious users. The trick is not to offer too much value at the lower fee. Else, your other users will trade down to your less expensive option.
9 - Offer a more expensive alternative to attract users willing to pay more for a better experience or results
Some users are willing to pay more for a better experience or greater benefits. You can tap into that by offering a more expensive option that gives them more of what they want. Surplus revenue from this set of users can subsidize services to other users and keep their fees low.
10 - Use the offer stacking technique to create effective fee tiers
Offer stacking is a powerful method for developing a tiered fee menu. Start with a basic offer and add more and more value at each higher fee level. Offer stacking lets users spend less rather than go completely without. It also gives users the opportunity to spend more to get more, but only if they want to. Clear value-fee tradeoffs will ensure every user doesn't select the cheapest option.