Is it worth charging very low-income target groups a small fee for access to health services when the resulting income will cover very little of the running costs? Or should we focus exclusively on other potential income sources, chaning the organization from an aid project to a social franchise model? -Luke Disney, Co-director, North Star Foundation, Amsterdam, The Netherlands
My quick response to your question--based on how you worded it--is that it is not worth charging your clients because the small fees will produce so little income. However, there are several assumptions built into your question, and they raise some important questions. How "small" does the fee have to be in order to avoid discouraging your clients from using your services? If the client fees "cover very little" of your costs, what are your realistic options for covering the remaining costs? Is there a good reason to charge a small fee even though it generates very little income? (Perhaps clients would use your health services more thoughtfully, for example.) Would charging a fee be a simple first step for your organization to try and evaluate, before undertaking the additional effort of finding other income sources?
Not knowing your specific circumstances, I'll suggest some general guidelines for generating income by charging your clients for your services. First, you should be clear about your objectives and your financial projections for the future. How much fee-based income do you need or want in each of the next few years? Is your fee-based income target based on an expectation that your other sources of income will not meet your future needs, or do you simply have a desire to diversify your income sources? Is your objective to become completely self-supporting and no longer dependent on any grants or contributions?
After clarifying your objectives, estimate the percentage of your fee-based income target that can realistically be provided by charging your clients. I assume from the way you worded your question that it will be a very small percent. What other sources of non-contributed income will you be able to find in order to meet your target? As with so many decisions, it comes down to comparing the benefits and costs of various alternatives. In addition to the "hard" costs associated with the effort needed to obtain additional fee-based income, consider the "soft" costs such as a negative impact on your organization's mission.
Here are some questions you need to answer before moving forward:
1) What are the best two or three opportunities for generating earned income while still holding true to our values and mission?
2) What criteria are most important to our organization in choosing which of the options to implement?
3) What is the potential revenue that we could generate, over what period of time? And at what cost?
4) What staffing and other organizational capacity considerations should we consider in order to be successful?
Comment
Thanks for you reply Tony; your comments help clarify our thought process. Our Foundation is supporting the establishment of roadside health clinics for long-haul truck drivers in Africa, India and Southeast Asia to address the extremely high rates of STIs, including HIV, among this group. There are several such projects already in existence, all funded by major aid programmes. In addition to trying to link up these existing networks and plug some of the gaps in coverage, we are also trying to introduce a more sustainable model, less dependent on (bi)annual funding rounds from donor agenices. Through our experience with the centres we are currently running we know that the demand among the target group for medical services is high, but their disposable income is low. We are confident that they would be willing to pay a small fee for treatment, but that this would only generate 5-10% of the annual running costs. We’re already squeezing the costs as much as possible through low-cost facilities (converted containers) and in-kind donations (water, electricity, medical equipment). Some theories suggest that it’s better to charge a nominal fee regardless of the impact on the bottom line as it leads beneficiaries to value the services more. But this is a different discussion. We’re also having some success in getting transport companies to adopt clinics and cover the running costs as health drivers are in their best business interests. Truck stop owners also like the centres for the increased business they generate, so they often donate electricity and water, as well as the location. However, we’re still looking to see if we can take it one step further to make it more of a social franchise. Any thoughts?
Luke
»» Posted by: luke@north-star-foundation.org on March 23, 2007 02:35 AM