Hey Jim -
Thats a question that gets tossed around here a lot .
I am very selective about playing any gigs that don't pay... sometimes it is warrented .. not usually.
The coffee house pay often depends on the capacity of the venue. How much revenue could the performance potentially generate? Compensation should be based on that. As long a venue is using me to make money for their business, I should be compensated.
Heres a long story made long .. grin When I was getting started playing out I got a gig at a well established coffee shop. I was thrilled to get that gig. The original deal .. guarentee $30 stipend, plus tips ... I always brought in a decent crowd which benifited both of us .. business for them .. good tips for me... of course they liked having me there.
Then the venue expanded the coffee shop and added a full bar.. I remember sitting there on a Friday night .. watching the bar full of people all night .. drinking $10 glasses of wine ... hmmmmmm .. no change in pay.
When I discussed the need for adjustment in my fee, the venue said he couldn't afford to pay more for 3 hrs of music.
That was my last night ..
What an insult!
I explained .. 3 hrs!?!? I rehearse at home, pack my gear, drive to the venue, set up my gear, play for 3 hrs, break down my gear, drive home , unload my car ... and did I mention advertise!! Its not just a 3 hr gig! It was an absolute insult to me as a musician ... now THATS what I call exploitation.

After that, the venue managed to get some inexperienced musicians who would gladly play for free .. They soon learned, you get what you pay for... and free music often is music that won't fill their venue with paying customers.

There should always be some form of compensation, even if that is a stipend by the venue, tips or pass the hat.

Our church choirs are usually directed by a paid musical director .. but the choir is usually made up of volunteers from the parish ..
However, when hired as a solist for special services ie: weddings & funerals I get paid.

Its not easy to make a living as a singer songwriter .. but i'm working on it.. maybe someday!