Shining a Light on the True Cost
Pricing tied to using a specific service provider chosen by the FSP
An FSP may require you to use a certain printer, mailer, designer, etc., and often you directly pay that service provider; your FSP is not adding a markup. However, remember that the FSP is in business to make a profit — so what's happening here?
Quite likely, the FSP may have an agreement with the service provider that states that the service provider will pay the FSP a share of the profits on any work the FSP sends to that provider. And since the service provider is also in business to make a profit, that provider has added to the price it is charging you both the profit it needs to make and the portion of the invoiced amount that it must then pay to the FSP.
Ongoing user charge or license fee
This is infrequent, but I have seen it (and paid it). Basically, an FSP offers to provide something to you at no or a very low charge for one-time use. If it works and you want to use it again, you pay a few cents for every usage.
For example, a writer wrote an acquisition letter but didn't charge the NPO where I worked. Our contract stated that I could mail 25,000 copies of that letter. If the results were good and I wanted to mail it again, I would pay 2 cents for every letter I mailed. My initial risk was $0, and the writer's risk was the cost of his time to write a letter. But since the letter worked, every time I mailed it again, I paid a few pennies for every piece in the mail. When I mailed it to 50,000 prospects, he made $1,000. If it worked really well and I wanted to mail it to 250,000 prospects, he made $5,000. He gambled his initial time and had a potential to earn far more than his initial investment of time over months and years.
Pamela consults with nonprofits, helping them develop their fundraising strategy and writing copy to achieve their goals. Additionally, she teaches fundraising at two universities, hoping to inspire the next generation of fundraisers to be passionate about the profession. Previously, Pamela led the fundraising programs for nonprofit organizations. Pamela is a member of the Advisory Panel for Rogare, the fundraising think tank at Plymouth University’s Hartsook Centre for Sustainable Philanthropy, a CFRE, a graduate of Wheaton College (IL) and Dominican University, and holds a Doctorate in Business Administration from California Southern University. Contact Pamela at email@example.com or follow her on Twitter at @pjbarden.