How your non-profit can earn revenue with Web 2.0: Part 4 - Fee for service

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This blog post is part of our series on Social Media for Social Enterprise: How non-profits can earn revenue with Web 2.0.

Social media sites and online communities create a compelling user experience that can let non-profits earn fees for service, just like many for-profit web sites do. Fee-for-service revenue models require very careful pricing and management: when you're charging people to use some or all of your site, you need to ensure you're offering something that's more compelling than what they can get for free.

You also need to beware of potential ad-driven competitors: if someone else can create a site that offers the same benefits of yours, but make it free to users (by earning revenue from ads rather than user fees) you are extremely vulnerable to competition. Your best way to insulate against that is not just market dominance (free sites can catch up to even very large fee-for service sites quite quickly) but by creating (fostering?) "sticky" social relationships -- tight, intense bonds among users that make them reluctant to leave their online friends.

If you want to earn money from online service fees, here are some guidelines to keep in mind:

  • Assess your competition. Is anyone else offering this service, and how much are they charging? If you want to charge as much or more, what can you offer to make your service more attractive? (Don't forget the value of supporting your organization... but don't overestimate it, either.)
  • Assess your service. Bear in mind the network effect that lends value to many online services: the more people who use them, the more valuable they are. Don't charge so much for your service that it reduces participation enough to diminish its value significantly.
  • Assess your mission. Are you pricing yourself out of the reach of some potential "customers" -- even if these customers are the very folks you were set up to serve?

If you're looking for ways to earn online revenue through fees-for-service, your options include:

  1. Listings or classifieds: Many user-driven sites include user-placed listings or classifieds. These are quite different from other forms of advertising because they can become a very substantial part of a site's content or value to users: in the case of craigslist, user-generated listings constitute the entire site. Because user-contributed listings can in fact create a lot of value on a site, you want to tread carefully before you charge people to place them. Charity Village (itself a for-profit) charges non-profits to place recruitment ads. Craigslist charges ad fees for certain categories of ad in certain cities.
  2. A la carte services: Some web sites offer particular value-added services. If your organization already provides some services on a fee-for-service basis, consider placing these online. For example, career counselling, writing services. etc.
  3. Basic membership/access: Some sites make access available only to paying users. This makes it very hard to build traffic or membership, since prospective members can't see enough of your site to evaluate its potential value to them. A site that strictly limits access to paying members is most appropriate for elite level networks in which limiting membership is actually desired, such as a leadership network. If you're trying to achieve large-scale membership or traffic for your site, a pure pay-for-access model is probably not for you.

  4. Premium membership: Many sites make basic membership or use available for free, but charge users for premium membership or a higher level of service. This is very common practice on professional association websites like that of the American Nurses Association, which offers members access to policy papers, an online journal, and a social network.

    A good for-profit example of this model is Flickr: Flickr lets anyone use its photo upload and sharing service, but if you want to store more than a couple hundred photos online, you need to pay a $24.95 per year service fee that gives you unlimited use of the site. This example highlights a few best practices for premium membership or service fees:
  • Allow users to try out most of your services for free so they can see why it's worth paying for
  • Let users view the full range of content on your site, at least in "teaser" form
  • Keep premium fees low to reduce user hesitation
  • Allow free contribution of content as well as access, so users can see how easy it is to add content
You can charge a premium for:
  • Higher volume of service (unlimited downloads; access to archives; unlimited hours of use)
  • Higher quality of service (higher quality images; full text articles; customer support)
  • Higher volume of relationships (number of people allowed in a user's network; number of users allowed in an organization's account)
  • Ongoing access (after an initial, but generous, period of free service -- probably 30 days)
  • Full profile information: home swaps and dating sites sometimes show listings for free, but charge for the ability to contact

If you are thinking about charging fees for some part of your online service, consider these questions:

  • What offline services do we currently charge for? If your non-profit already charges fees for certain kinds of services, taking those services online may provide a great opportunity for earning revenue. But bear in mind that people expect some things for free online that they're perfectly used to paying for offline (like access to their local newspaper).
  • Will charging a fee for this service make it less accessible to the people we're trying to serve? If your goal is to serve a specific community or client base, be sure that your fees don't get in the way of your mission. One option is to charge for the service but set up a generous policy for providing complimentary access on request or application.
  • How could charging fees improve the level of service we provide? Many software companies provide their tools for free or cheap, but charge a premium for support hours. If your clients are asking for services you can't afford to provide, start asking how much they'd be willing to pay for an upgrade.

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