What’s the basic difference?
Over the past seven years we’ve had hundreds of requests for non-profit discounts. They come from non-profits of all sizes. Some are huge multinational charities, some are small local volunteer organizations, others are somewhere in the middle. Just like there are small businesses, medium sized businesses, and large businesses, there are small, medium, and large non-profits.
The fundamental difference between a for-profit business and a non-profit business is the profit. For-profits are allowed to realize a profit, non-profits aren’t. Non-profits can generate a profit – called a surplus – but they have to reinvest it back into the organization. For-profits can take the profit and distribute it to their shareholders, owners, or anyone else they’d like. That’s the key difference.
There are some other differences too. Some might say that non-profits do good, while for-profits do business, but I don’t believe that 1. matters, or 2. suggests that for-profits don’t do good.
Another difference might be staffing. Many non-profits are staffed by volunteers. But many aren’t. In fact, according to the BLS, non-profits employ 8.7 million people (6% of all workers in the US). Overall, average hourly earnings of full-time workers at non-profits and for-profits are about the same. So both non-profits and for-profits have a lot of paychecks to write.
Yet another difference could be revenue from customers vs. fundraising from donors or funding through grants. But wherever it comes from, it’s still money in the door to sustain operations.
Adding this all up, I’ve never understood how these differences relate to pricing. Why should a non-profit organization pay less for services (or supplies or food or rent or…) than a for-profit company? How is an automatic discount for a non-profit fair to a full-price paying for-profit? They both have employees, budgets, goals, financial pressures, etc. If you don’t look at the tax code or the sign on the door, they are the same.
Who decides who really needs a discount?
Many of the non-profits that have contacted us asking for discounts have operating budgets far north of many of our for-profit customers’ annual revenues. Many of our small business customers are individual entrepreneurs barely making enough to pay themselves. Some of our small business customers are still in the red – making them “non-profits”, literally.
To be clear: We don’t have anything against non-profits (our CEO founded the Support World Peace Organization, Americans For World Peace, and many others that are all Non-Profit 501(c)(3) and 501(c)(4) organizations). Over the years we’ve donated our services and portions of our own revenue to select causes, schools, teachers, relief efforts, and organizations — many of which have been non-profits. Where appropriate, we try to help when we feel we can. There are plenty of non-profits doing incredibly important work around the world. And many of these organizations are staffed by devoted volunteers who generously give their time for their cause. We respect these organizations and these people.
However, we believe everyone who pays us for our services should pay the same price. We’ve worked hard to keep our prices reasonable. We haven’t increased our prices in years. From the small guy just getting started in his spare time on the weekends, to an established small business, to organizations assembled for a cause, to small groups inside some of the world’s largest corporations, our rates are the same no matter who you are or what you do.
We believe prices should be fair, public, and consistent
We don’t want to be one of those companies that has a “who you are determines how much we can charge you” pricing model. We find those models unfair, dishonest, and flat out unappealing. The best pricing is clear, fair, public, consistent, and predictable.
When you contract MagnifyAds you should know we aren’t charging you more than someone else just because we can. You aren’t paying a higher or lower price based on your negotiation skills. That doesn’t mean an exception here and there for a rare special case can’t be made — it means that when someone sees a published price on our site they can be confident that that’s what it costs to get the job done efficiently based on our vast experience and ability to not financially profile our clients, gouging some to make up for awarded discounts to others.
Hiring a Contractor as a Non-Profit
This is a conversation our staff members have with clients quite often: The issue of a nonprofit hiring and paying an independent contractor. What is fascinating is the degree of resistance we often get when attempting to explain the way the IRS and the state see such matters. Seems like everybody has a story about how somebody else is doing things.
“If they can do it, why can’t I?”
The reason businesses (including nonprofits) like to use independent contractors is simple: it saves on employment taxes. The problem lies in the fact that the person your nonprofit is paying is not an independent contractor simply because you want her to be. Whether or not someone is legitimately an independent contractor depends upon a set of well-defined rules. And understanding these rules can save you a lot of headache with Uncle Sam.
The IRS uses Publication 15-A, Employers Supplemental Tax Guide (58 total printed pages), while the Department of Labor uses a more generalized, 3 page document. You can click on the links to learn more about these tests. Whichever test you employ (Get it? Employ?), it boils down to three, simple concepts:
Concept #1: Behavioral.
Does the company control or have the right to control what the worker does and how the worker does his or her job?
Let’s use an example. Suppose you operate a daycare and you have a clogged drain in the kitchen area. What do you do? You call a plumber, of course. It is very unlikely that you will stand over the plumber and instruct him on how to fix your drain. No, you called a professional for a reason. He knows how to fix your clog! You may have some input or preferences. But for the most part, he is in control of what he does and how he does it.
Conversely, if you hire a part-time receptionist, it is very likely that the balance of control lies with the organization, not the receptionist. The receptionist is told when to come in everyday, how long to stay and what the job expectations are…even to the point of being trained in how to do most every aspect of the job!
Concept #2: Financial.
Are the business aspects of the worker’s job controlled by the payer? These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.
In our example of the plumber, what is the likelihood you will be supplying the plumber with tools to open your drain. Not very likely. Your receptionist, on the other hand, probably won’t be expected to supply her own phone and computer.
Another financial consideration involves the element of risk. Contractors have opportunity to experience financial loss, whether it be from underbidding a particular job or simply running his or her business in the red. Employees are not generally exposed to the potential for loss. If they have a job, they get paid.
Concept #3: Type of relationship.
Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
When the plumber is finished, you will be invoiced. He decides the fee. You may or may not have an ongoing contract with him for future services, but the relationship is clearly one of professional and client. I’ve yet to meet the receptionist who bills for her services at a fee she determines.
The reality is, it isn’t that complicated. People just want to make it that way. And the game they are playing by treating employees as contractors will catch up with them eventually…and when it does, it will be very, very expensive indeed. Don’t take chances that can greatly harm your nonprofit. It’s not worth the risk to either your organization’s finances or reputation.
The idea that non-profits should receive special privileges or discounts is a myth perpetuated by an old school of misinformation. Like a business, the cost of operating is a hard figure; founders of non-profits base their salaries on those figures and plan everything in their organization around hard figures. If they are truly a fundraising entity they will raise the funds necessary to operate, just like a business.
Hiring an Independent Contractor like MagnifyAds to build your website or provide a service should be a cost your business, for-profit or non-profit, should be prepared to pay for as an operating cost and those operating costs should be covered by current revenue/donations or from a surplus.