Chronicle of Philanthropy, Mark Kramer argues that every nonprofit institution has three indispensable "customers:" the clients it serves, the donors who support it, and the volunteers or staff members who help get the work done. The failure to serve any one, while tolerable in the short run, will sooner or later undermine the organization's survival

Mark R. Kramer

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ARTICLE REPRINTWho Exactly are the ‘Customers’ of a Nonprofit Organization?Mark R. KramerThe Chronicle of Philanthropy, May 31, 2001Profit-making corporations have it easy: They knowexactly who their customers are. For nonprofit organiza-tions, things are considerably more confusing.No organization can develop an effective strategy with-out knowing its customer. But who is the customer of anonprofit group?Unlike profit-making companies whose income isderived from their customers, serving the “customers”who are identified in a typical nonprofit mission state-ment doesn’t ensure that the organization will survive.Without donors and volunteers, most nonprofit organi-zations cannot sustain themselves financially.Therefore, a nonprofit group’s strategy cannot bederived from its mission statement alone.Donors ensure survival, and in many ways nonprofitgroups treat them as their primary customers. Nonprofitchief executives often spend the largest proportion oftheir time with donors. Strategic plans are frequentlybuilt on fund-raising targets, and new programs are fre-quently attempted because they fit the priorities of par-ticular foundations or major donors.But acknowledging the donor as the “customer” is adouble-edged sword. Few nonprofit organizations wouldaccept a strategy that catered to their financial support-ers instead of serving their social mission. Nonprofitgroups, therefore, must simultaneously meet the needsof their clients and donors—two very different con-stituencies that interact in unexpected ways.Customers, for example, usually determine pricing; acompany can’t spend more on its services than its cus-tomers are willing to pay. But how much can a nonprofitorganization spend to serve its clients? The clients who benefit are usually not the ones whopay the primary cost. And the donors, who providefinancial support, may never have first-hand knowledgeof the services they are paying for.If the donor pays the bill, however, then it must be thedonor who sets the price. Nonprofit organizations areleft with the paradoxical situation of being able tospend as much on their clients as the value donorsplace on their service. That may be why nonprofit groups that provide servicesthat donors themselves value—an Ivy League educationor an exhibit at an art museum—can spend much moreon their clients than a social-service organization fillinga need most donors have never experienced.Organizations that depend on volunteers have stillanother group of customers to consider. The estimatedvalue of volunteer hours contributed annually to non-profit groups in the United States exceeds all cash con-tributions combined. Besides, given the differencebetween for-profit and nonprofit wages, one could arguethat almost all nonprofit employees are partly volun-teers too. And the needs of volunteers are entirely dif-ferent from those of either donors or clients. The fact is that every nonprofit institution has threeindispensable “customers”: the clients it serves, thedonors who support it, and the volunteers or staff mem-bers who help get the work done. The failure to serveany one, while tolerable in the short run, will sooner orlater undermine its survival. Each of these customer segments represents a marketin which nonprofit groups compete. As much as we maylike to think that nonprofit organizations don’t compete,the facts are otherwise. They compete for donorsagainst other fund-raising organizations, they competefor the time of volunteers against other personal obliga-tions and opportunities, and they even compete fortheir clients: If people do not choose to use the benefitsprovided, a nonprofit group cannot fulfill its social mis-sion. Worse yet, each set of customers wants something dif-ferent. Creating value for one segment doesn’t automat-ically satisfy the others. If strategy is about serving a setof customer needs better than competitors do, nonprofitorganizations must find a way to simultaneously fill theneeds of each one of their customer groups. Foundations must deal with a similar three-partaccountability. They have an obligation to create value for society byusing their tax-subsidized resources effectively, but theyalso must satisfy the needs of their grant recipients ifthey are to help them succeed. What’s more, they mustsatisfy their donors and boards if their staff membersare to keep their jobs. For them, society, grantees, andtheir boards represent separate segments that expect—and deserve—different needs to be met.The problem is, no organization can follow three unre-lated strategies to create three different kinds of valuefor three separate constituencies. A single, overarchingstrategy must be developed to simultaneously meet theneeds of all three “customers” in a way that is bothinternally consistent and mutually reinforcing. And that makes running a nonprofit organization harderthan running anything else.Foundation Strategy Group, LLC20 Park Plaza, Suite 1127Boston, MA 02116 (617) 357-4000www.foundationstrategy.com© 2001 Mark R. Kramer

Who Exactly are the Customers of a Nonprofit Organization?

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Who Exactly are the Customers of a Nonprofit Organization?

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