#25 3 reasons to stop giving (just) nonprofits discounts
I know I know, it seems like a no brainer, especially with SaaS based solutions: use some of your philanthropic revenue to subsidize the discounting of your software for nonprofit customers. Some SaaS solutions even give their product away for free (which, ultimately, isn’t really a huge expense as the incremental cost of software is $0).
Here’s why I don’t like this practice.
1. Nonprofits are different but if you’re giving stuff away you’re not incentivized to design for them: They’re not that different from for-profit businesses, but they’re different. They have a volunteer board. They almost all the time have (at least) two primary customer sets: their end users and their donors. Their accounting is a bit different.
We all know that companies evolve as they get direct and indirect feedback from their customers. They especially listen to the customers who pay them $. If nonprofits aren’t paying, iterative improvements on services or products will likely not be centered around nonprofits’ needs. If you give your products and services away to nonprofits, instead of creating an affordable round peg that fits with the nonprofit’s round hole, you’re potentially creating a free square peg that doesn’t fit without the nonprofit having to hack around it, and you’re not incentivized to change its shape because you’re not losing or making any extra money either way.
2. Nonprofits need sustainable business models: So you’re selling your solution at a discount to nonprofits - great. Then you go out of business. Or move. Or decide to stop discounting. “Free” and “discounted” are not the norms in business, they’re the exception, and they don’t always stick around. If a nonprofit is going to last, its budget and financial model have to be able to cover whatever it needs to do great work long term, and relying on a bunch of things being discounted or free creates a lot of risks in that arena.
3. Other entities do just as much good: While there’s no black and white definition of for-profit social enterprises, they drive just as much impact as nonprofits (if not, at times, more). So why shouldn’t they get the discount?
That said, it’s hard to perform due diligence and figure out if a business is really an impactful social enterprise or if it just says it’s one. You can seek out certified B Corps, but then what about the businesses who still are impactful but have not yet, for whatever reason, gotten certified?
Instead of giving things away to nonprofits, I always encourage companies to design tiered solutions that work for the social impact sector – incorporation agnostic – and price them in a way that gives nonprofits and social enterprises both reliability and clout as paying buyers. Sometimes this means modifying products to meet varied price points; while my more hand-holding consulting services are thousands of $$, I created my Impact Tuneup™️, priced at time of writing this at $897, as an affordable entry point to everyone. If I were to give the tuneup away to some clients, I’d definitely not do as thorough of a job. When customers pay, and all pay the same price, I give them all the same level and quality of service - and those that can afford more buy my follow on consulting services.
I also encourage fundraising staff and donors in the nonprofit sectors to stop seeking stuff for free. Yes, nonprofits have volunteers, but the other stuff they need – paid staff, tech, furniture, office space, travel expenses – are the same things every other business needs, and the quality should be on par if the results are going to be on par. There’s no logical reason to think nonprofits can operate on less than their for-profit peers and still deliver quality results.
I’d love to hear your thoughts here, and am always down to chat more.