Illustration of writing an article on a laptop

ASU Lodestar Center Blog

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



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.

Diversify funding sources

At the ASU Lodestar Center for Philanthropy and Nonprofit Innovation, we encourage organizations to diversify funding across three primary sources: traditional philanthropy, government funding, and earned income. Many organizations are also taking advantage of emerging funding sources of such as market and capital financing.

Fees for services and other earned income sources are important sources for revenue diversification for nonprofit organizations, but not without challenges. I recently interacted with three organizations providing valuable services in their communities. All were struggling with finding appropriate resources to support services, and all were invested in providing services free of charge. One program was in a rural area that feared charging for its popular after school program would limit participation to only the more affluent children in town, another was concerned that schools could not afford to pay for a safety program for students, and the third wanted to publish books and make them available to schools to distribute to children without charge.

How do free services support your mission?

Many organizations feel strongly that services must be free. It is helpful to examine this philosophy and tease out its roots and ramifications and whether or not free services furthers the organization’s mission or may actually be limited the organization’s impact.

In the case of the after school program, the services were offered as part of a larger government program with a deep culture of free services, so charging a fee for this program would run counter to the larger organizational culture. Additionally, the organization was ill equipped to manage the financial process of collecting what would likely not be significant fees for participation. Instead of charging fees, the organization chooses to sell t-shirts and host a fundraiser for families, with activities similar to those conducted in the after school program. In this case, charging fees for services did not support the mission.


Do you have questions about starting, governing, managing or operating a nonprofit organization?


In the second case of the school safety program, those running the program did not want to place a burden on schools, yet schools are desperately in need of effective resources to enhance student safety. Schools are spending money on safety, supported by national and local initiatives spurred by tragedies of school violence. This program offers a very inexpensive and effective tool in protecting kids. The integration of this program alongside other offerings has tremendous value to schools, value schools can and should support with fees. Instead of knocking on the door of individual school principles, this organization would benefit from educating itself on existing and emerging school safety funding and partnering with state education departments and school districts, where larger scale funding decisions are planned and made, based on actual and potential resources. In this organization’s case, offering its services for free limited its reach and impact, but figuring out how to charge fees to the right sources could be quite advantageous in advancing the organizational mission.

In the case of the third organization, book publishing is a longstanding and profitable endeavor in the private sector and the organization had already enjoyed significant success in publishing and distributing a specialty book throughout the state. Attractive, useful books, for early readers have market appeal across a broad spectrum so why not sell books to pay for giving others away? Alternately, joining forces with existing free book distribution programs could expand the organization’s reach and access to resources. The organization’s mission could be advanced through partnerships and charging for its products.

Are the fees collected taxable?

In the examples above, the fees and income derived would be aligned with the tax exempt mission and therefore not taxable. Profits may be considered unrelated business income and subject to federal tax if the profit is derived from an activity not related to the mission and regularly carried on. Click here for more information on unrelated business income.


Every organization would benefit from examining and creating opportunities for earned income as part of an overall strategy to diversify revenue sources. Fees for services can be derived directly from the service recipients, but also from third parties that are invested in the outcomes your program provides. For example, a victim of crime may seek out counseling, the fees for which could be paid by a victim’s compensation fund. Investigate all opportunities and implications from collecting fees and choose the best options for your organization.

At age 23, Anne Byrne was the founding executive director of Denver’s rape crisis center, an organization that continues to flourish today, over 28 years later. Byrne went on to build a nationally recognized, multi-site summer and after school tutoring program for inner city youth. With 25 years of experience as an executive director of emerging nonprofit organizations, Byrne, who is a Professional-in-Residence at the ASU Lodestar Center, brings valuable expertise and perspective to the "Ask a Nonprofit Specialist."


ASU Lodestar Center Blog