Dougherty explains the move:

We’ve concluded that, as a nonprofit, we cannot raise the money we need to build a truly robust local news organization that provides comprehensive local coverage.

The Daily News needs $1 million to $2 million per year to do a great job of covering a city as sprawling and complex as Chicago. And despite hundreds of phone calls and letters to foundations, corporations and individual donors over the past four years, we’ve never come close to that.

Last year, we raised about $300,000. This year, due to the economic downturn, it was unclear whether we would be able to maintain that level of revenue, let alone move quickly to expand our coverage.

Jim Barnett, former Washington correspondent at The Oregonian who is now studying not-for-profit journalism models at George Washington University, thinks other news start-ups may follow the Chi-Town Daily News example and use not-for-profit status to prove an editorial concept before launching a for-profit venture.

“I do think more will follow this path, but not this quickly, and, I think, out of strength rather than necessity,” says Barnett, who blogs his research here and at the Nieman Journalism Lab. “I think other nonprofits with ambitious revenue goals will consider hybrid strategies — perhaps launching for-profit operations that help supplement their resources, much as Minnesota Public Radio did before spinning them off. But the strength of the nonprofit model would remain — that is, it puts the needs of the newsroom ahead of the investor.”

“Reader donations allow us to hire talented full-time journalists to cover key beats like housing, the environment and Chicago’s community college system, and to train volunteer neighborhood reporters,” the site denotes.

Individual stories on the site cost between $250-$1,000 to produce, depending on the word length. A typical story is worth about $350.

“It’s completely based on cost per word,” says Geoff Dougherty, the Chi-Town Daily News’ editor and CEO. “We took our expenditures for the last fiscal year and divided them by the number of words that we published over the same period.”

“In addition to boosting our donations, we’re offering people a really useful window into the cost of producing public affairs news,” he adds.

Donations from readers go to the organization’s general overhead — rent and utilities, “the occasional computer,” and paying the website’s seven-member staff, which includes a community organizer, three beat reporters, and two part-time editors.

Plenty of nonprofit news organizations like NPR have asked for donations from their audiences over the years, but Chi-Town Daily News is one of the first to breakdown its costs on a story-to-story basis. Their model resembles the one developed by Spot.Us, which asks for readers to cover the costs of investigative stories — like the origins of the Great Pacific Garbage Patch — before the fact.

“If you look at NPR, they often talk about how much it costs to run a news station,” says Geoff. “But there’s never been a specific breakdown of costs. We thought this might be a good way to get readers more engaged in the funding of news.”