In a recent op-ed in The New York Times, a board member of Groton School asks the provocative question: Do private schools charge too little? (This with tuition at independent schools pushing $50,000 per year.) But the author makes a compelling case that the old business model for these institutions is broken and proposes instead “means-based” pricing for education.
I’m not sure if I agree with the solution, but the root problem he identifies is real enough. And it’s not just private schools, but nonprofits of all kinds that are facing existential questions about their business models. Some have grown fast on government funding (in the global health sector, for example) and now find themselves threatened by federal budget cuts. Others have relied for years on foundation support while neglecting individual or corporate donors, and now find themselves scrambling to replace funding as foundations retrench following the the financial crisis. And organizations that charge for services – theatres, museums, and kid’s programs, for instance – are trapped by same pressures that keep driving tuition at private schools and colleges higher and higher.
Faced with a broken business model, the first reaction for most nonprofits is to diversify. They approach this as a revenue problem, and look to increase the percentage contribution from each of the major sources of donations and grants: government, individuals, foundations, corporations, and earned income. And with good reason: it works in the short term. Most high-impact organizations enjoy a diverse base of support. But diversifying revenue is only a temporary fix. The larger truth is that there are still too many organizations chasing too few dollars and having too little impact. In the profit world, many of these would fold, but not so in the nonprofit sector. Until there is more accountability for result – and a more rational allocation of philanthropic capital – it will be difficult indeed for nonprofits to develop a truly sustainable business model.
