3 Important Ways Online Fundraising Systems Differ
It’s easy.Click a few buttons and set up a fundraising page to solicit friends and family to give to a cause. There are dozens of different companies that offer this type of peer-to-peer fundraising tool, and in many ways the products seem pretty similar — but there are actually some very significant differences that both nonprofits and donors should really understand.
Difference #1: Fee Structure
There is a cost to developing software, as well as for processing electronic payments, so there are always fees that someone is paying for these tools.
Fees can be charged in two ways:
The person or nonprofit who sets up the fundraising page pays the fees.
The donor pays an additional donation amount or “tip” to cover the fees.
Either method can be reasonable, but many sites misleadingly promote themselves as free tools. Others don’t present all the costs clearly. A common cause of confusion is when there is a fee for using the system (usually 3-8%), plus another percentage for processing (another 2-5%).
Some products charge the fundraiser/nonprofit those fees and ask the donor to “contribute” to cover the costs, but that “contribution” is usually going to the system provider and doesn’t always lower the costs deducted from the donation. In contrast, the Donors Cover Costs feature in DonorPerfect provides 100% of the additional contribution to the non-profit.
Difference #2: Overall Processing Costs
As a result of the above fee structures, the true cost of donations can be as high as 10-15% of the transaction, depending upon the fundraising system you choose. That’s a lot higher than the 2-3% processing expense that is possible through DonorPerfect’s integrated online donation forms (Weblink), where a nonprofit only incurs the fee for the credit card processing.
Difference #3: Distribution of Funds
Perhaps the most important difference, and one that is often not understood by donors is, where do the funds go?
To a nonprofit organization
Some vendors, such as ourselves, offer systems that are set up and managed by the nonprofit, and all funds raised go directly to the nonprofit organization. That means that the donation is normally tax deductible to the donor. It also means that a donor can be confident that the use of the funds is being directed by the nonprofit. As an additional benefit, the non-profit receives the funds with 48 hours and also receives information about the donor, allowing them to provide prompt acknowledgement of the gift.
The individual who set up the campaign
Popular websites like GoFundMe and YouCaring are not run by or affiliated with bona fide nonprofits. They allow anyone to set up campaigns, for almost any purpose. Campaigns are often set up to benefit an individual, which can be the campaign creator. As such, there is typically no real vetting process involved, so sites like this can, and are, being used for fraudulent fundraising efforts. Donations via sites like these are considered personal gifts and are only tax deductible if the donation is made to what GoFundMe calls a Certified Charity. Although GoFundMe provides this information in their FAQs, it is very likely that most donors do not understand this important distinction.
Does it matter?
I assume that the vast majority of GoFundMe campaigns are legitimate efforts to raise funds for people in real need, and I certainly believe all generosity should be encouraged. But I do worry that a proliferation of solicitations from and for individuals may siphon donations that might be more effective if they were directed to established nonprofits working on behalf of a well known or verifiable cause. I also worry that publicity around fraudulent fundraising efforts could hurt similar fundraising efforts initiated by nonprofits.
What should nonprofits and donors do?
For starters, don’t assume that all online fundraising sites are similar. Do your due diligence.
Determine what are all the fees, regardless of who pays them.
Nonprofits should encourage supporters to use their direct online giving page if they solicit on the organization’s behalf.
Donors should make sure they understand where their gift is going and how much of the donation the fundraiser or charity actually receives.
Donors should consider directing their giving to nonprofits rather than individuals, unless they really know the individual recipient.