By Janine Vanderburg, President/CEO, Joining Vision and Action
Have you thought about charging for the services you offer as a nonprofit?
Have you been told by your colleagues and board members that you can’t or shouldn’t charge for the services? Myth: The largest source of revenue for nonprofits is grants.
Truth: Over 70 percent of nonprofit revenue is derived from earned income, and 45 percent from private (non-government) earned income. The rest of nonprofit revenue is contributed income, including contributions from individual donors, and grants from foundations and corporations. Once you add in planned gifts and family foundation dollars, approximately 88 percent of contributed income comes from individuals.
Myth: You can’t charge for the services you offer as a nonprofit.
Truth: You can charge, and as you can see from the statistics above, most nonprofit revenue comes from fees for services.
Myth: Earned income is only for prestigious nonprofits serving affluent customers like large museums, universities and hospitals.
Truth: Nonprofits of all sizes have benefited from adding earned income strategies to their revenue mix, from thrift shops supporting small town animal shelters to your neighborhood child care center to Greystone Bakery, a multimillion dollar operation that employs 80 people and subsidizes child care, affordable housing and other community development activities.
Myth: We will have to pay taxes if we charge for services, or we will lose our nonprofit status.
Truth: Some nonprofits that charge for services may end up paying Unrelated Business Income Tax (UBIT). That will only occur if:
- The kind of business that you operate is unrelated to the mission of your organization
- You regularly engage in that business
- You end up making a profit (Wouldn’t that be a nice problem to have? Woohoo!)
While the law requires that a nonprofit be operated exclusively for charitable purposes, the simple act of charging for services does not result in losing your nonprofit status, especially if you are charging for services that advance the mission of your organization.
There are a lot of myths out there about charging for services. And with foundation and other funding becoming more focused, ensuring that you have a stream of unrestricted revenue can be critical to your long-term sustainability. Charging for the services your nonprofit offers can be an important way to add to that unrestricted stream.
Want to learn more about pricing and how to set prices for your nonprofit or social enterprise? Join us 9 a.m.-noon August 30 for Pricing Your Services.