Hey, nonprofit consultants, funders don’t value your work.
I got an email the other day from a listserv of a nonprofit consultant that was titled,
“Start the Year Right: Value Your Work, Define Fair Pricing.”
I thought to myself,
“Who is it who actually decides what ‘fair pricing’ is? The consultant? The nonprofit? The funders and donors?”
In the last year or two, I have seen numerous conversations in consulting and freelance communities talking about value-based pricing for services with the conclusion typically being,
“Oh wow! I should charge more for my services because my work, time, and expertise are valuable.”
Usually, business and entrepreneurial books are cited in those conversations, but do you know what point is ALWAYS missing from conversations and articles discussing pricing for nonprofit freelancers and consultants?
Nonprofits overwhelmingly DON’T GET to invest in the valuable services and resources that increase their administrative costs - YOUR valuable services.
Our efforts to market our services and convince nonprofit leaders of our value has been wasted on the wrong folks. Have you ever wondered why nonprofit organizations often seem to move with trepidation when it comes to investing in essential services (your services) like strategic planning, program design, outcomes measurement, grant work, IDEA training, accounting, and funding development? We all know how immensely important these things are for an organization to succeed in its service delivery.
The answer lies in the misguided web of requirements set by funders and grantors, which create harmful barriers for nonprofits seeking to enhance their operational efficiency or innovation. As nonprofit consultants and freelancers, understanding and addressing these challenges should be at the forefront of our pricing considerations.
Our incredibly important and useful services are usually OVERHEAD and the funding world (both public and private) has consistently communicated that we are not valuable enough to fund.
Here are some examples of how it shows up in the real world:
The federal de minimus rate has been 10% until just this year (2024). After accepting comments on proposed changes, the rate has increased to 15% (thanks for the call to action, MTGW!). Though it is a needed increase, 15% is still painfully low when considering the important work that is being done. Private funders don’t have to follow the same federal guidelines for their grantmaking but still ask about administrative overhead and prefer it to be as low as possible, usually citing 10%. Here is a great article about Nonprofit Starvation Cycles created by this funding problem and here is an awesome video that wonders what if pizza shops were funded like nonprofits.
Recent data shows there are around 1.8 million nonprofit organizations in the United States with about 1.3 million of those being 501c3 organizations. Surprisingly, 76% of those organizations have annual revenues less than $100,000 and 89% have revenues less than $500,000 each year. Most of the organizations in the US are trying to make a difference in their communities with less than $500,000 a year! It takes money to grow and scale! More nonprofit statistics can be found here.
*Quick Math: If a nonprofit organization has a budget of $500,000 and only spends 15% of their budget on administrative overhead, they only have $75,000 a year to spend on portions of salaries, accounting, fundraising, strategic planning, communication, technology, facilities, utilities, grant writing, training, board development, IDEA initiatives, etc.In 2023, 71% of the applications I helped nonprofits submit were not allowed to request funds for general operating or administrative expenses. One organization I have been working with submitted two times more applications in 2023 than 2022, exponentially increased the amount they requested, and brought in $89,000 more than the previous year but still struggled to have enough money to pay their very small staff because all of that new money had to be spent on direct program costs rather than administration.
Nonprofit employees are consistently and sometimes dramatically paid less than for-profit counterparts. CEOs and Executive Directors of large nonprofits can be villainized for making large salaries even though they are still paid much less than for-profit CEOs. For more information about this double-standard, check out this article and this Ted Talk.
At this point, you may be thinking,
“Ok, that definitely stinks and seems downright wrong, but what are we supposed to do? We still have to make enough money to support our businesses and ourselves. We can’t just do pro bono work all the time.”
That is true. You should get paid for the work and value you bring. Nonprofits don’t get to think about their administrative needs as deeply as their program needs. They need to be taught or reminded of the value of all of our services as much as funders need to be taught that money should be invested in all parts of the organization - not just the parts that sound the nicest.
Here at A Village for Good, we have been researching and practicing different service and pricing models to see what kind of difference we can make for that 89% of organizations with budgets under $500,000. Here are our suggestions:
Nonprofits: when looking for consulting, subcontract, or freelance services, take time to determine exactly what services you need and what services you don’t. This is when free options (webinars, guides, Q & A sessions) can be incredibly helpful. They can prep you for the work you should ultimately pay for. Be prepared to be a partner in the work being done together, instead of just being along for the ride. Make sure the work you are looking for is timed well and strategic so you can harness the momentum and build on the work once the contract is over.
Consultants and freelancers: consider incorporating a tiered pricing structure, service packages, or “a la carte” options that align with the financial constraints of nonprofits. Offering flexible packages and fractional services that cater to different budget levels allows organizations to access your expertise without compromising their financial sustainability. It fosters a sense of partnership that is important for the success of the contracted work. Also, be upfront about your services and pricing. If you find yourself fielding a large amount of emails and calls with organizations that are not a good fit, it is probably because you aren’t being informative enough about what you charge and what you offer. Don’t make people guess.
Both nonprofits and consultants: consider playing an active role in educating funders and grantors about the broader needs of nonprofits. By articulating the value of services that may fall under administrative and overhead categories, everyone can contribute to a paradigm shift in funding practices, ultimately empowering nonprofits (and our society) to thrive.
As nonprofit consultants and freelancers, there is nothing stopping us from actively participating in reshaping the conversation around nonprofit funding. We have the professional flexibility to advocate for more balance between money that exists for charitable purposes and money that is spent on charitable purposes (spoiler: there is A LOT more untaxed charitable money sitting in accounts than being spent in communities).
Hopefully, you’re now saying,
“Yeah! If nonprofits have more unrestricted funds and get to invest in their infrastructure and team, I will have more business that pays me for my time, value, and expertise. We should totally be talking about this more and pulling funders into the conversation!”
If you are ready to participate in more productive conversations, here are some people furthering them and places where they are happening: