Does your organization need fee-based income?

Contrary to what many startup nonprofits think, you may need something to "sell" to stay in business and accomplish your mission. That something is usually a service.

As can be seen, the 144 million 501(c)(3) public charities are receiving 75% of their program costs from some form of fee-based income to accomplish their missions.

Most fledgling organizations seen to think that their ticket to success is to "get grants". In reality, even if you include government grants, less than 25% of public charity funding comes from the much vaunted "free money" fountain.

The 13.6% "private contributions" segment comprises giving by individuals, foundations and businesses, and that pretty much covers the impact of non-governmental grant funding.

Using product development strategies

For profit businesses seeking to bring a product to market spend months and years doing market and development research, building prototypes and trialing the product in test markets to establish the viability, i.e. the profit potential of their products.

As a nonprofit you need to adopt that mindset if you hope to be competitive in the fee-for-service world.

If you are considering non-grant funding, ask yourself at least these 5 questions:

1.     Is there a need for our programs and on what scale?
2.     Can we prove that our solutions are more effective, faster,  and/or less expensive?
3.     What are the costs for development and sustainability (the program budget)?
4.     What non-grant funding is available to support these services?
5.     Do we have the infrastructure already in place to administer your programs on a level compatible with the grant requirements? 

Suppose your mission is to provide meals to low-income families.

If your goal is provide foodstuffs to feed 20 people at a local church every Friday, you can probably garner enough local, i.e. private support to sustain the mission.

Let's say that your goal instead is to start and operate a food bank that can provide food to serve 10,000 meals a month. You are going to have to qualify for funding from any one of several government programs or through national associations or foundations.

Any of those sources will require that you meet standards regarding sanitation, storage, recordkeeping and various other volumes of red tape, all of which cost money to manage before you give away a single loaf of bread.

On that scale, you are going to have to pin down the specifics. Winging it and hoping for the best isn't a good strategy to win government funded contracts or grants.

One other consideration for our hypothetical food bank is that to compete for fees, you pretty much need to have your infrastructure already in place. You can't get your determination letter on Monday and acquire enough funding to arrive at your end goal on Friday.

 

How does funding availability impact your mission design?

Let's say that you have determined that the foodstuffs for a meal costs $2.00 in actual food-related  costs, plus another 75 cents in overhead costs. That means that you will need to raise $27,500 a month every month just to acquire the food, store it and distribute it. Any other overhead (rent, utilities etc.) not directly related to the food will add other costs.

If you are an approved vendor for say, the government's Summer Food Service Program (SFPS) lunch program, the reimbursement rate per meal served averages about $3.45. If the meal is a breakfast however, the rate is under $2.00.

In short, the type of program you offer has to fit the available funding. You might WANT to furnish breakfasts, but if the funding isn't there, you may be forced to offer lunches or dinners instead.

Accepting fee-based income isn't for everyone, but it is certainly something to consider as a significant part of your revenue planning.