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Beneficial charging of beneficiaries

Fears that charities could weaken their legitimacy by charging for services are not borne out by the data, concludes a new study from the Cambridge Centre for Social Innovation.

hand giving money for investment the future

Lacking empirical research, charity leaders have traditionally relied upon “emotional judgements” in deciding whether to charge for their services, with many concerned that fees could weaken their perceived legitimacy as charitable organisations.

Yet such fears are not borne out by the data, concludes a new study from the Centre for Social Innovation at Cambridge Judge Business School.

The study, the first in a series of theses from the Centre’s Master of Studies in Social Innovation programme to be summarised and posted by the Centre for Social Innovation, finds that there is no significant correlation between charging and a range of variables that charities care deeply about: mission focus, quality as charities, staff morale, volunteer commitment, and relationship with beneficiaries.

As expenditure was found to have the most influence on a charity’s ability to deliver its social goal, the research therefore concludes that charities “should explore all options available to increase spending on their social mission, including charging beneficiaries’ fees for services where appropriate.”

The study was conducted by Flóra Raffai, chief executive of Cambrdge-based vision charity Cam Sight, as her masters thesis for the MSt in Social Innovation degree programme. Flora graduated from the programme in 2018, after being part of its first entering class in 2016. The research was supervised by Dr Neil Stott, Director of the Centre for Social Innovation at Cambridge Judge, and a summary of the research was edited by Dr Michelle Fava, Head of Knowledge Transfer at the Centre.

Subjects of the study were selected from the umbrella charity Visionary, as they are representative of UK charities more broadly, with data collected through a survey and analysis of the participating charities’ annual accounts. A total of 94 charity accounts were thoroughly analysed, with those charities having incomes ranging from around £32,000 to £117 million, with an average income of about £2.49 million and average expenditure of £2.66 million. The charities ranged in age from four to 225 years, with an average of 94 years.

The charity sector suffered a significant fall in philanthropic income following the financial crisis of 2007-08, so charities increasingly raised funds by charging for services – with income from fees for services increasing by 45 per cent in real terms between 2007 and 2015.

Yet despite this trend, “there has been little research into the implication of charging beneficiaries’ fees for services,” says the posted summary of the research. This prompted the study, entitled “Fee or Free: Should Charities Charge Beneficiaries Fees for Services?”

The study finds that, contrary to some fears, charities which charge for their services actually strengthen their social mission. “Charities who charge generally have more income, more numerous and diverse sources of income, larger staff numbers, and a larger community of beneficiaries,” says the summary of the research.

The Centre for Social Innovation decided to post a series of summaries of former students’ theses to share more broadly the knowledge gained from research on various issues surrounding entrepreneurship and innovation that support social causes.

“The Master of Social Innovation programme recently welcomed its third cohort of students, and these students have already benefited from hearing about the research and experience of students who came before them in the past couple of years,” says Dr Neil Stott. “So we believe it will benefit an even wider audience to post the theses of former students who choose to have their research posted – starting with these findings on charities and fee charging, which have important implications for how charities manage their financial affairs.”