Fee Mania.

Who needs donors, anyway?

The number of nonprofits in this country has almost doubled in just the last 10 years, a remarkable number both for its breadth and size. There were approximately 1.6 million organizations in 1998, compared to 1.3 million in 1987, according to recent Internal Revenue Service figures.

In a stack of statistics re-warmed and re-released recently by Independent Sector (IS), a Washington, D.C., advocacy organization, this remarkable growth is even more startling when you compare it to the growth of all organizations -- public and private -- which now number 27.7 million. That's an increase of a whopping 26 percent compared the same 1987-1998 period.

Nonprofits account for about 6 percent of all organizations, a percentage that has remained steady through the decade. It means that nonprofit growth has mirrored the growth of free enterprise in this country, a hearty endorsement of U.S. philanthropy.

One number in the new IS almanac that jumps out should ring alarm bells in every nonprofit executive suite. Until recently, most pundits pointed out that the government (federal and states combined) was the single largest funder of nonprofits. This statement alone shocks most and is the reason why nonprofits probably spend so much of their resources on chasing government dollars.

That has all changed. Government funding has now fallen to just less than one third of all revenues (31 percent) of nonprofits, according to IS. The bigger news is that dues, fees and charges now constitute the single largest percentage of revenues to nonprofit organizations. Such fee-generated income provided the lion's share, 38 percent, of all nonprofit revenue in 1997, the most recent year for which numbers are available. Fees eclipse government funding by almost 6 percent, a reversal of prior revenue patterns.

When you lump fees and government funding together as a percentage of total revenue, they constitute a colossal 70 percent. That's right, almost three out of every four dollars received by nonprofits came from fees and green checks.

Private donations bring in a paltry 20 percent.

Here is another eye-opening number: Despite the four fold increase in private contribution dollars, the numbers as a percentage of revenue still fell. From $211.9 billion in 1982 to $664.8 billion in 1997, private donations accounted for only 20 percent versus 22 percent 15 years ago.

Despite accounting for 6.1 percent of national income, as Rodney Dangerfield's famous quip goes, nonprofits "get no respect." The cover story of last month's NPT underscored the continued regulatory assault on nonprofits. There's news out this month about how religious ponzi schemes allegedly bilked billions out of donors and investors. And, organizations continue to find fundraising more difficult and it's no wonder given the vast number of new competitors vying for donors' minds and pocketbooks.

The dramatic increase in competition is spurred, by among major factors, the number of organizations fundraising. According to the same IS almanac, there were 422,000 501(c)(3) organizations in 1987. There are now 734,000(c)(3)s.

Simply put, there has been a 74 percent increase in your competitors. Simple economics -- as more competitors chase the same or slightly increasing donor pool -- acquisition rates plummet as costs to acquire new donors leap each year. Nonprofits are spending more to steal each other's donors. Apparently, they believe this is a wiser economic investment than trying to find new donors.

The point of this statistical barrage is to underscore both the vibrancy of the nonprofit sector as well as its challenges. Fee generated income is great. Boards love it. It reduce administrative and fundraising costs dramatically and goes right to the bottom line.

But this type of income also has the affect of tarnishing the development raison d'etre. Long term studies need to be established to see how fees and dues dent the philanthropic case. Short term it's hard to tell, except in the IS numbers, which suggest fees-driven revenues might be having a retarding effect on raising monty. Too, fees and dues make nonprofits more susceptible to general economic conditions, a reversal of previous revenue charts. Usually, nonprofits do better in recessions and downturns as the philanthropic pulse is quickened. But relying more on marketing and fees, nonprofits face the same plight as their local retailer. When times are good, customers spend (read donate). When times are tough, their wallets shrink.

What type of organization do you want to be?