The tyranny of nonprofit rates: Why I charge nonprofits and businesses the same

Charging nonprofits lower rates than businesses for the same service is a common way of B2B price discrimination based on customer type.

I recently ditched nonprofit pricing – I now offer the same rate structure to nonprofits as to businesses. Here’s why (in random order).*

1. Tax status

Nonprofit rates equal price discrimination based on tax status, which is a poor criterion for such differentiation (in fact, logic would command charging higher prices to organizations that don’t have to pay the income tax). When nonprofits purchase products on the market, they typically pay the same price as everyone else.

With the exceptions of taxes and industry-specific issues, both businesses and nonprofits are corporations that must adhere to the same laws and regulations. That nonprofits are “public benefit corporations” – most of them, anyway – doesn’t exempt them from the one rule of business: revenues must exceed expenses. A bankrupt nonprofit is no good to anyone – “not for profit” should not equal “for loss”, as my old boss used to say.

I believe that if nonprofits would run more like businesses (“more like” not “exactly like”), particularly sustainable ones, they’d be more efficient and effective in pursuing their missions. Nonprofit rates undermine that belief by setting a different operational standard. Because of their public benefit characteristic, I actually hold nonprofits to a higher standard than businesses, and I want my prices to reflect that.

2. Signaling

Price is a crucial market signal, especially for services. A lower price suggests lower quality; a higher price increases the perception of quality. In turn, the customer’s belief about quality affects her subjective, service-related enjoyment and satisfaction. Lowering your price for nonprofits is likely to signal a lower quality service.

Every one of my clients, regardless of tax status, gets the same level and quality of service. In fact, because nonprofits tend to achieve a better People bottom line (my focus in sustainable marketing), I aim to provide more to nonprofits for their investment. Though you could consider providing more for the same price as discounting, there is no reason to charge less for more.

3. Differentiation

Because price is the most tangible element of your service, your clients will use it to compare you with your competitors. In my experience, that’s exactly what nonprofits do, primarily for budgetary reasons (the first question out of my mouth as a fundraiser/purchaser was, Do you have nonprofit rates?)

Price often becomes the primary – sometimes the only – criterion for deciding between service providers. When purchasing B2B services, nonprofits tend to see the dollar sign instead of the quality of service or delivered results. I’m taking myself out of that game.

As a sustainable marketer, I also advise clients against differentiating themselves on price. I’m following my own advice – I compete on delivering value to sustainable organizations.

4. Expectations

Nonprofit rates reinforce the “tyranny of low expectations”. Offering lower rates to “poor nonprofits” perpetuates the lower standards we as business people place on the nonprofits’ performance and that they place on themselves. Nonprofits can and should do better because we can’t afford to lose them and their good work in the community.

I believe there is enough capacity in nonprofits to allocate their existing resources to areas that move mission and generate ROI. Doing more doesn’t require more funding – it requires better allocation. Nonprofit rates encourage resource misallocation.

Because of budgetary and overhead considerations, nonprofits often end up cutting corners. Lower rates encourage such behavior, or at least fail to prevent it. Charging market rates puts nonprofits and business service providers on a level and transparent playing field. I have high expectations of nonprofits, and I want my prices reflect that.

5. Law of attraction

Like attracts like. Lower rates attract less attractive clients and projects. Higher rates work the other way.

More attractive nonprofit projects generate a better ROI for the community and its stakeholders, and come from more attractive clients. I’m going beyond the financial standpoint: I’m talking about the quality of the project and the organization as a client. It’s the difference between an organized, confident, and reliable client and one that’s anything but.

I want to make a difference with my work and believe I can do that best with high ROI projects and organizations. I want my prices to attract that kind of work.

6. Financial sustainability

This one is personal. My triple bottom line includes prosperity. If I can’t make a living with my business, I can’t help my business and especially my clients achieve their triple bottom line goals. And I also can’t share with my community the resources arising from being a profitable business. A bankrupt business, too, is no good to anyone.

P.S.: Yes on pro bono, donations, and volunteering

I aimed to outline the case for dropping discounted nonprofit rates. None of the above is to say I will cease offering pro bono services, donating money, and volunteering, whenever possible.

What do you think? Do you charge nonprofits and businesses differently or the same? Why? What are the benefits and drawbacks of nonprofit rates?

***

* I’d long felt uneasy about nonprofit rates. Lots of thinking, events, and experiences led to this decision. Many conversations with fellow B2B service providers contributed as well, and I’m thankful to everyone for their input and sharing.

Image credit: Niemster

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