Balancing the Mission Checkbook

Earned revenue by any other name smells as sweet

Nonprofit professionals understand the value of a good set of words. The right choice of words frames how we consider issues, and perhaps even how we come around to solutions. We can all name lots of issues from “estate tax” and “death tax” to “pay raise” and “cost-of-living adjustment.” How we talk about business models can impact what we do with them, which can in turn impact our sustainability (or survival, if you prefer a more charged word).

Nonprofits Assistance Fund encourages all our partners to think about how their revenue is balanced, and how sustainable that revenue source is over the long term. The nonprofit sector is concerned about reductions in large, unrestricted grants (from both philanthropy and government).  Part of the equation may be for more fee-for-service revenue, or any other earned revenue sources where the exchange of value to the nonprofit is dependent on specific delivery of services for a given purpose or time. Where nonprofits can trip up here is the choice of wording. Client service fees are often poorly received – it feels like nonprofits are asking for money from the very people we’re trying to help and that must somehow be undermining our mission. Earned revenue, however, may mean more independence and less business risk.

They are often, of course, exactly the same thing.

A big difference here is the assumption that a client service fee is paid by the client. It is not written anywhere that requiring a fee means it has to be paid by someone unable to pay it. It means it is expensive to do what we do and sometimes it is helpful to quantify our services in order to get people to support us. If we ask for $10,000 in general mission from a government source, we may have a hard time getting those dollars. If we charge a government partner $100 per client for our services for 100 low-income families in the community, we are now getting a third-party payer to fund a client fee, rather than asking for a grant. That $10,000 spends the same, but how we ask for it matters.

The benefit of the first grant is unrestricted money takes less management time, and is more flexible to meet the needs to the nonprofit as they arise. The downside of the grant is it is rapidly becoming an endangered species. The downside of the fee-for-service arrangement described here is that money is only earned once a service is delivered, so managing it may cause a cash flow issue. (Pro-tip: you’ll know this if you do a regular cash-flow projection.) The biggest upside is, of course, you may have a better shot at this kind of revenue and some is better than none.

We shouldn’t let the words we choose for earned revenue slow us down.  Nonprofits are a creative bunch, and we just have to get creative about who is paying, rather than the idea that any fee-based revenue comes directly from clients. 

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