Ask a Nonprofit Specialist: Should we charge fees for our services?

posted by
Anne Byrne,
ASU Lodestar Center

Question: We provide our services free to our program participants, but we are feeling the strain of limited resources. Some have suggested we charge a fee for our services, but I am reluctant to go down this road. What should we consider about charging fees for our services? Will we be required to pay taxes on fees collected?

The traditional charity model is based on the expectation that organizations raise funds from institutions and individuals in order to provide services to those in need, primarily free of charge. Charitable giving continues to flourish in this country; according to the Giving USA report, charitable giving totaled $298 billion in 2011,with 73% of funds donated by individuals. Americans continue to be very generous, but unfortunately, the demand for services outstrips our ability to fund services with charitable gifts alone.

Research Friday: Current Status of Arizona's Philanthropic Resources

posted by
Marissa Theisen,
President & CEO
Arizona Grantmakers Forum

Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. Today, we welcome Marissa Theisen of Arizona Grantmakers Forum to discuss findings from the 2010 Arizona Giving Report.

One never-ending concern for nonprofits is funding. Organizations must continually evaluate which programs get priority, and at times, make tough decisions as to which ones get cut. As a state-wide sector, it can help us to understand what funding looks like across Arizona. Arizona Grantmakers Forum (AGF) released a 2010 Arizona Giving Report earlier this year. It provides an overview of the size and scope of philanthropic activities in our state, based on 2008 IRS data. The findings reveal some interesting facts and raise serious questions about the funding of Arizona's nonprofit sector:

First, Arizona's institutional philanthropic sector is smaller than most states. Total foundation assets were just under $6 billion. Arizona ranked 40th among states in terms of private foundation assets per capita. Given Arizona's severe economic challenges, we don't anticipate any significant increase in the total size of our philanthropic assets over the next several years.

Research Friday: Many Nonprofits Face Cash Crisis

posted by
Angela Francis
Senior Associate
Nonprofit Finance Fund

Welcome to Research Friday! For this week's post, we welcome Angela Francis, Senior Associate, from Nonprofit Finance Fund to discuss NFF's recently released State of the Sector survey findings. We've had a great response thus far to Research Friday, our weekly series on nonprofit research. We welcome your comments, feedback, and suggestions!

At Nonprofit Finance Fund (NFF), we use data and capital to drive our work with nonprofits and their funders nationwide. One source of data informing this work is our annual State of the Sector Survey. Earlier this year, nearly 2,000 nonprofit leaders completed the survey, and the results help us to better understand and communicate the economic reality facing nonprofit practitioners on the ground. In a previous Research Friday post, I covered some key survey takeaways on the increased demand for services in 2011, and how this is communicated to funders. This week, I want to delve a little deeper into the survey responses that we received in another key area: cash available to manage risk.

As we work with clients, provide workshops, and present on nonprofit finance issues, one question pops up again and again: how much cash cushion should a nonprofit have? One of my NFF colleagues recently explained why the answer is different for every organization and depends on a number of factors. As a rough benchmark, though, NFF recommends nonprofits should have enough cash to sustain operations for at least three months. Having less than one month of cash at your disposal is generally considered a cash crisis.

A more ideal situation is holding three to six months of cash, which makes it easier to start thinking long term and building up reserves: a rainy day fund, facility reserves, etc. Organizations with reserves are better prepared for an emergency (major building repairs, loss of a primary funding source, severe economic upheaval), and, in a crisis, it's more likely that they can continue providing their services uninterrupted.

The Great Connection: Engaging Donors in Your Mission

posted by
Clyde W. Kunz, CFRE,

ASU Lodestar Center
NMI Instructor /
Clyde Kunz and Associates, LLC

Most people, by their very nature, want to help others. Though not universal, it's true that people continue to volunteer and contribute money in support of organizations doing good work in our communities.

Periodically I run into someone (and even at times a fellow fundraising professional!) who argues, "People aren't as giving as they used to be." Data about giving suggests otherwise. In fact, Americans' giving over the past 40 years has averaged 2.2% of household income. Even today, in the midst of what many are calling "the Great Recession," giving hovers at the same rate as a percentage of income.

So, why do individuals contribute money to nonprofit organizations?

Each of us has different interests and concerns. While most of those concerns are focused on our own needs (I have to remember to pay the mortgage this week. What am I going to feed the kids for dinner? I'm late for work and almost out of gas!), we also have individual concerns that are more outwardly-focused (Why are there so many homeless people on the street these days? I wonder how my church can pay for its new roof? Who will take care of kids who are taken from dangerous family situations?)

Research Friday: Really, is the Nonprofit Sector Becoming More Commercialized?

posted by
Mark Hager, Ph.D.
Associate Professor,
ASU School of Community
Resources & Development

Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert from our academic faculty to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.

Near the end of the past semester, my class discussed one of the chestnuts of the nonprofit sector. Our text, Peter Frumkin's On Being Nonprofit makes some strong statements about the place of earned revenues in nonprofit organizations. "Earned" revenues are those that come from sales and contracts, not from the donated revenues that so many people associate with nonprofits. Some people really hate the idea of earned revenues, believing that commerciality makes nonprofits look and act more like businesses, which can erode their special character. On the other hand, proponents of social enterprise have a lot of good things to say about earned income strategies, especially in lean times when grants and contributions are hard to come by.

However, the particular chestnut we talked about in class isn't whether commerciality is good or bad. The topic was prominent statements about how much commerciality has crept into the sector over the past couple decades. A great recent article by Curtis Child points to statements by Frumkin and others about this alleged explosion in commerciality, which he refers to as the "commercial turn." Weisbrod refers to massive changes characterized as a pattern of growing commercialization of nonprofit organizations. Backman and Smith have called commercialization a major trend with potentially portentous consequences for civil society. Young and Salamon suggest that new commercial orientations are perhaps the dominant force shaping the nonprofit sector, following from Young's strong claims about rapidly growing commerciality in the late 1990s. Austin and colleagues reiterate the commercial turn thesis, as does Dees. The claim of increased commerciality starts feeling rather official when Tuckman and Chang proclaim it in Chapter 27 of the well-regarded Research Handbook and Anheier alerts students to significantly growing marketization and reliance on fee income on page 211 of his textbook.

Those, friends, are big names. Surely they must be right, and commerciality and marketization have been noticeably on the uptick over the last few decades? Enter Curtis Child, whose research on the topic was published last year in Social Forces, a reputable journal in the social sciences. In short, Child not only notices that the Emperor has no clothes, but is willing to point it out. "Whither the turn?" asks Child. He just doesn't see it.