Charging for services, trading and ethics (put a poka-yoke in your pipeline)

Last week, NCVO released its Financial Sustainability review of the Voluntary Sector. Amongst the none-too-rosy findings of the challenges surrounding funding in the sector, one quote leapt out at me, particularly in the context of the media furore about charities and ethics:

“While donations have recently recovered to pre-recession levels, the significant growth in income from individuals has been driven by fees charged by charities for services. Relying on this as a major source of future income growth may be unsustainable or undermine organisations’ charitable aims in some parts of the sector.”

This statement, in my mind, is pretty controversial, or at least it should be. Especially as the stats show that charging for services has been one of the few growth areas for the sector.

capture income individuals

In my role at NCVO, I’ve spent the past six years or so helping organisations to look at sustainable funding, which has often focused on helping them to diversify their income away from a dependency on grants. One of the key ways organisations can do this, is to charge for services.

But surely, beneficiaries can’t afford to pay?

The answer that organisations used to give, time and time again, was that their beneficiaries couldn’t afford to pay for services. And some of the time, this is quite right.

But often not.

For example, one organisation we worked with – an early years childcare provider – ended up in a situation whereby they could either cut services, reduce their quality, or charge. When asked, the parents overwhelmingly supported paying something towards the service to make sure it continued. Because they valued it highly.

Quite a different response to the one anticipated by a delegate in a training course I ran once, who memorably said, ‘but if we charge people, then they’ll just go to the organisation down the road!’.

If you ask someone if they’d rather pay for a service, or get it free, then it’s no surprise when they say, ‘free’. If you ask someone if they’d rather pay for a service, or see it close, then you’re likely to get a much more revealing answer.

But we’re a charity, not a company!

There is nothing, anywhere, that says that charities are obliged to give stuff away for free. There is nothing inherent in ‘public benefit’ that implies ‘free’.

On the other hand, there is a lot about people valuing things more if they have to pay for them. It’s really depressing and says a lot about the degree to which capitalism has permeated our culture and our brains, but there we are. The psychologists have proven that if you pay for something, you value it. If you pay a lot for it, you value it even more. The most expensive things are usually also the most desirable, even if that bears no relation to their actual quality.

Back in the good old days of grant funding, NCVO used to deliver a lot of training for free. People used to fail to turn up. They’d leave early. They’d check emails all the way through. They’d be disengaged and clearly not valuing the training at all. I even had one lady tell me she’d need to leave after lunch because she couldn’t come to London without taking the chance to do a bit of shopping.

A few years on and the same training, charged for, has a full room of enthusiastic delegates who tell us they are acting on what they’ve learnt from the day (and the trainers are happier too).

Some charities, particularly in the area of disability, have a different approach to thinking about charging, believing that turning ‘service users’ or ‘beneficiaries’ into ‘customers’ is a pretty empowering change for everyone (and this approach echoes much of the current policy for the delivery of public services).

So grants are bad, enterprise is good?

No.

The report is right – charging does have ethical implications. Charities need to make sure that the people who need their services can access them. And this is likely to mean that in order for those services to be high quality, they need subsidising.

And in some cases, they will need to be free. Because it is easy to think of all sorts of occasions when it is completely inappropriate to discuss money before giving people access to help.

And it is easy to see that whilst charging promotes an appreciation of quality for those services that are in demand, what about charities that are not in demand? Those who are trying to reach groups who do not want their help? Who are disengaged and not interested?

If we limit access to charity services to only those who are prepared to pay something towards them, then the sector can only ever be responsive to market needs.
And the most vulnerable, most disengaged, most at risk will be shut out.

Deciding whether or not to charge for services

The photo below is from my copy of the Good Guide to Trading (sorry, I couldn’t lay my ethical compass1hands on a digital copy – the pink circles say ‘mission and values’, ‘transparency’, ‘accountability’ and ‘equality and diversity’, in case you can’t read them).

It shows an ‘ethical compass’, which is a shorthand illustration to help you to think about trading in reference to your organisation’s ethical principles (it’s actually quite helpful for all types of fundraising). The idea is that you use each heading to identify the ethical principles that underpin your trading, and then the specific actions you will take to guard against these principles being compromised. You could also think about the positive ethical opportunities associated with your idea too – such as my earlier point about service users and beneficiaries.

This process reminds me of the (quite frankly ridiculous sounding, in English) ‘poka-yoke’ approach from Lean Methodology. It can roughly be translated as ‘mistake proofing’. The moral compass helps you to think through the elements of a trading idea that could conflict with your ethics, and then it is down to you to work through the design of your idea to make sure they don’t!

For example, the childcare provider I mentioned above developed a sliding scale for charging, and included non-financial contributions such as volunteering. I’d also suggest that they keep a close eye on whether there are any changes in the demographics of people accessing their services.

The stats are there – trading and charging for services is a clear opportunity for growth in the sector. But I think the sector has had enough bad press recently, so please build ethics into the design process!

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Rosaline Jenkins Ros is NCVO's lead in Sustainable Funding, promoting a more sustainable, suitable and strategic approach to generating income of all kinds - donations, grants, contracts and trading. @RosJTweets

8 Responses to Charging for services, trading and ethics (put a poka-yoke in your pipeline)

  1. Joe Bicarregui says:

    Agree completely: trading (ethically) is fine. In fact, in the case of a charity I’m involved in it is our prime source of income. We are a small community gym committed to improving health and well being in our area. We charge more or less market rates to those that can afford it and very reduced rates to those who could not afford the service otherwise, and to people with severe health problems whom we consider to be greatly in need of the service we provide. We struggle financially, but somehow, thanks to fundraising, donations, volunteering and grants, we survive.
    It would be a big help if we could recover VAT on inputs, but HMRC says no, because we are running a business. The fact that we are a charity and that the “business” would never survive if it were not for donors, volunteers etc… doesn’t come into it. So if recovering your input VAT is important to you, you need to be careful that your trading activities do not get you classified as a business according to HMRC rules. This seems completely wrong to me.

  2. Fantastic blog, common sense rules that stack up. We’ve had very similar feedback recently to both your training and childcare examples when looking at how we offer our own services to our charity partners.

  3. Antony karuku says:

    I like the idea and concept of NCVO

  4. Antony karuku says:

    I like the concept and big ideas

  5. Our charity runs coffee mornings with speakers and charge £2.50 per person. No one has challenged the fee and a couple have said it is too cheap. I do agree it is cheap, but we get quantity to our events which gives us a good return and pays for most of our overheads for the year.

  6. E. Knneth Eckersley says:

    Due to the extremeley high costs of providing residential Addiction Recovery Training to allow addicts to recover themselves back to the natural state of relaxed abstinence into which they were born, it would be impossible to deliver our excellent results without charging, as this this is not a sector replete with grants or voluntary donors.

    The main factors making this a voluntary or charitable operation is the long hours our paid staff and volunteers work, and the fact that we do not and have no intention of ever making a profit out of the people we are here to help.

  7. Brian Seaton says:

    Great article – I agree with just about all the points it makes.

    Unfortunately it’s conclusions are based on a fatally flawed premise, namely that the Charities Act (CA) puts into legal terms (ie: is synonymous with) the common, “Man on the Clapham omnibus”, understanding of what “charity” is all about.
    W R O N G !
    Ask the “Man on the Clapham omnibus” (ie: look in any dictionary) what “charity” is and you’ll consistently get “voluntary giving for those in need”.

    But the CA, in a remarkable act of Humpty Dumpty-ism (Lewis Carroll – Through the Looking Glass – “When I use a word … it means just what I choose it to mean—neither more nor less”), chooses “charity” to mean something different.
    Of the 13 “charitable purposes” defined by the CA less than ¼ require that the beneficiaries of charity be “those in need”.
    Nor does the CA require that charities should be “voluntary”. Even the “requirement” that Trustees not be remunerated can be (and is) waived.

    In fact, the CA definition of “charity” bears no resemblance to the common understanding of “charity”. Instead, it defines “charity” as “not-for-profit” organisations “for the public benefit” (ie: social enterprises). Even the notion of charity being not-for-profit isHumpty Dumpty-ism. The Charity Commission guidance CC35, “Trustees trading and tax”, contains ca.100 references to the profits made by charities.

    Initially the discrepancy between the common & legal definitions was inconsequential, not least because they overlap. But as charities are pushed to be more commercial the discrepancies between the operational paradigms of “true charities” (ie: operating to the common, dictionary definition of charity) and those of “commercial charities” (ie: social enterprises operating to the CA definition of charity) are becoming uncomfortably obvious.

    At the heart of the discrepancy is, inevitably, money.

    In the “commercial” paradigm it is the customer who has the money to pay for the services that they want. That money goes to the provider(s) of the services who take(s) their costs and pass the profit to the owners of the business.
    Cash flow is from those who have some money to those who want more (and, generally, already have more).

    In the “true charity” paradigm the beneficiary has insufficient resources to pay for the services they need, so the costs are subsidised by the charity’s benefactors.
    Cash flow is from those who have money to those who need the services but lack sufficient resources to pay for them – ie: the REVERSE direction to that in commercial enterprises.

    There follows 2 further fundamental differences between the “true charity” and “commercial” paradigms.

    Value-for-money.
    In the “commercial” paradigm, the value-for-money of the services received is judged by the customer as part of deciding whether to buy the services (and depends on the honesty of the provider).
    Caveat Emptor (“Let the buyer beware” – more colloquially known as “Rip-off Britain”) has long been recognised as the “dark side” of commercial practice.
    By contrast: in the “charity” paradigm the receiver and payer of the services are different, making it difficult for either to assess the value-for-money of what is provided. As fundraising integrity is called into question, Caveat Donator (“Let the donor beware” – “Rip-off Charities”) is emerging as the “dark side” of British charity.

    Motivation.
    In the commercial paradigm cash-flow is driven by the motivation of the providers to generate wealth for themselves.
    The charity paradigm is the antithesis of the commercial paradigm. REVERSE cash flow is driven by the philanthropic motivation of donors to use such wealth as they have to help others less fortunate than themselves.

    I have no problem with encouraging charity beneficiaries to contribute to their benefits where they can.
    But let’s STOP deluding ourselves that social trading – charging for providing “public benefit” services – is “charity” and get back to focusing on “real charity” – voluntary donations to those in need.

  8. Malcolm Bloor says:

    I am a trustee of a community minibus. Since we operatea pre-booked service for people in villages to tranport them to various market towns on 3days per week.We charge a economic fare and do not accept concessionary bus passes.Passengers appreciate the service and do not object to paying the fare