How “commercial” should your nonprofit be?

When a nonprofit is established to help people in need, charging beneficiaries would appear to defeat the objective. But in many cases, introducing fees can result in benefits for everyone.

Marco Bertini

In an article by Esade professor Marco Bertini, which appeared in the Harvard Business Review, co-authored by Boston Consulting Group’s Jean-Manuel Izaret and Richard Hutchinson, the global pricing strategy experts stress that, in some contexts, introducing nominal fees for those who can afford to pay even low amounts creates a sense of ownership, boosts engagement, and results in successful, sustainable operations

It may seem that charging the beneficiaries of a nonprofit organization could stop people in need from getting the assistance they need. On the contrary, adding a pricing mechanism when recipients have the ability to pay can lead the way for more sustained aid over time. Nonetheless, the authors emphasize that not in every context is it right to charge for services: in humanitarian settings, for instance, people must be exempt from paying for obvious reasons. 

All hands to the pump

Project Maji is a nonprofit operation that installs and operates solar-powered water kiosks in Ghanaian communities. The project was established by entrepreneur Sunil Lalvani, who noticed that despite multiple water hand pumps being installed within the communities by NGOs, many of them had fallen into disrepair

After the pumps’ initial installation by the NGOs, over time, many of them had fallen into disrepair. The problem, Lalvani suspected, was caused by a perceived lack of ownership: as those who relied on the water weren’t responsible for paying for it, they didn’t believe they were responsible for maintaining the hand pumps. Rather than being shrugged off as a deliberate ‘not my job’ attitude by villagers, the absence of a price mechanism inadvertently removed the duty of care and responsibility for maintenance. Lalvani consulted extensively with the communities to gain critical insights into their needs and identify how best to manage the ongoing operation of the kiosks. 

Any potential fee must consider the wide range of circumstances of individuals or groups

He discovered that, while some households were simply unable to contribute financially for access to water, many households were able to pay but unwilling to do so, often because of a lack of understanding about the true impact of drinking and using unsafe water. This discovery contradicted the belief that, when it comes the beneficiaries of nonprofits, every objection comes down to affordability. Importantly, by taking the time to gain local insight, the team established that with essential context and education, an unwillingness to pay could be turned around.  

Armed with this knowledge, a basic and fair fee structure was agreed upon that resulted in the communities assuming ownership of the kiosks and their maintenance. This shared responsibility ensured everyone had access to clean water and a vested interest in maintaining the services. 

Reading the room

As stated in the NGO Worldreader website, in May 2009, David Risher, (now the CEO of Lyft) encountered a locked library door in Ecuador. Motivated to offer books to those in need, he recognized the potential of e-reader technology to function in the most remote corners of the world, where access to compelling and relevant reading material was severely limited. Collaborating with his colleague and former Esade executive, Colin McElwee, they established the NGO.  

Keen to ensure children in low-income countries had access to reading materials, they grew Worldreader from supporting 22 children in a rural classroom to a global organization providing electronic resources to 22 million readers worldwide. 

Although it had enjoyed huge growth, Worldreader’s donation model constrained its ongoing impact. Like Project Maji, Worldreader set out to speak to the communities in which it operated to identify whether and how they would be able to affordably contribute to the service. 

If people can’t see the benefit of a service or solution, even the smallest of fees will be rejected

The result was an affordable subscription model for the partner schools with a system of networks and quantity-based discounts, all developed in line with local price points and affordability. This model raises much-needed funds for Worldreader and allows it to continue to expand its work, while communities in low-income countries have access to the educational resources they need. 

Priced into the market

It may seem unconscionable to many NGOs to charge their beneficiaries. But Bertini, Izaret and Hutchinson say that the experiences of Project Maji, Worldreader and others illustrate that it is not only feasible but, in many cases, advisable to ask for payment.  

The authors outline three simple steps NGOs can take to ensure that a pricing strategy creates value and ensures services reach those who need them: 

1. Treat beneficiaries as individuals, not as a unit

  • The ability of people to pay can vary widely, so any fee schedule should ensure that it is based on the wide range of circumstances of individuals or groups. One nonprofit nursery group in London charges higher fees in more affluent parts of the city, with lower fees in poorer areas. A California-based early-years nonprofit offers services on a ‘pick and mix’ basis, allowing parents on lower incomes to select the services they will find most valuable, rather than being priced out of childcare altogether.  

3. Educate beneficiaries about the benefits of NGO services

  • If people can’t see the benefit of a service or solution, even the smallest of fees will be rejected: the fundamental difference between ability and willingness to pay. In Rwanda, a lack of feminine hygiene products was resulting in women and girls regularly missing school and work at a cost to the country of $215 GDP per woman per year. The men who traditionally managed the household budgets saw no benefit to spending money on sanitary products, even at the vastly reduced price offered by a local charity. When officials and households were educated on the harm of missed school and work, and it was explained how spending just 60 cents on a pack of sanitary pads would actually increase income, the take-up of the reduced-priced products increased and the missed days due to menstruation were reduced. 

3. Share accountability

  • If the beneficiary must seek out a service and make a payment to receive the benefit of that service, this passes the responsibility of creating a positive impact from the NGO to the beneficiary. The result is a transactional relationship, likely to be inconvenient or unreliable for the beneficiary, and poor take-up. To overcome this, the nonprofit must use an income model that results in a more balanced relationship, such as an on-demand subscription or price-per-usage. 

In all instances, the nonprofit should ensure a level of knowledge and local insight that allows them to make informed decisions and offer acceptable choices that are within the reach of the intended beneficiaries. They should also retain strict control over the quality of the solution on offer, with tight measurement tools to ensure impact. 

Nonprofits often assume that the introduction of pricing would result in a system that excludes the very people they set out to help. But when done with care and a lot of attention to detail, it becomes a fair, affordable trade-off that allows the NGO to offer better services to more people

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