September 5, 2013; SCAN Foundation
In the wake of the Great Recession, and the challenges nonprofit organizations continue to face with raising funds through charitable contributions, there is general consensus that there is a need to look at earned revenue more closely. Earned revenue, of course, is the money made by having customers or clients pay for the goods or services being offered. For those people and organizations who got into this work without a business degree, and who are used to offering a service for free because it’s needed, this concept can be scary: How do we know what to charge?
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A new, helpful resource has been developed by the SCAN Foundation. It includes a Pricing Guide and a tool to calculate cost-per-unit. You can find and download it here.
The Pricing Guide is a very quick read at about 38 pages, including appendices on marketing and other related ideas. The main body of the guide will take the reader through the basic concepts of how to set a price. None of this is new or exceptionally difficult, but the guide does a nice job of encouraging the reader to think about who in the equation has control or power, the value proposition, whether to include administrative overhead costs, and the option of setting different prices for different customers.
The related unit-cost calculator is a very simple Excel spreadsheet. There are two areas for data entry: variable costs and fixed costs. The user is encouraged not to include identified “sunk costs”: items that would be in the organization’s budget whether or not the product or service were offered. This includes things like the Executive Director’s salary, any existing facility, etc., which would be impacted as a result of any profit the product or service generated.
Although the tool is aimed mostly at the healthcare industry as it responds to challenges from the Affordable Care Act, it can be useful for and used by any organization. It is nice to have access to a simple tool that is free of charge. Of course, the main supposition in the guide is that the customer has some capacity to pay, which, unfortunately, is not always the case.—Rob Meiksins