Online Fundraising
The Internet has forever altered how nonprofits will engage with their constituents
John P. Morgridge, Chairman of the Board
Cisco Systems
With this issue of NRC e-News, we launch "Tech Talk," a once-a-month discussion of how you can use the Internet to build your organization, expand your reach and deliver vital services. There couldn't be a more appropriate launch topic than the issue of online fundraising.
While the World Wide Web has been among the most significant new fundraising tools in the past decade, it has not nearly reached its full potential. Both in terms of the dollars raised and the number of organizations using Web sites for fundraising, year-to-year growth continues at more than 50 percent -- with the expectation that billions will be given online in the coming year.
Online fundraising reached an estimated $2 billion in 2003, more than 60 percent above the amount raised in 2002, according to an online survey of readers of The NonProfit Times. There was also a projected greater than 55 percent increase in the percentage of organizations that attempted to raise money online when the first half of 2003 is compared to 2002.
Since the mid-1990's, nonprofit organizations have been aware of the potential income opportunities that the Web promises. With recent developments in e-commerce and the fast pace of Internet growth, people are becoming more ready to donate online. An example is $1.2 million in online gifts for Balkan Relief, from more than 9,000 donors received by the Red Cross in the first half of 1999. And the response to the Sept. 11, 2001 attacks was unprecedented.
Rapid adoption of the Internet is creating a universe of potential online donors that is, according to a recently published study by CMS Interactive, "vast and largely untapped." These technology-savvy donors tend to be professional, affluent, and younger, which makes them attractive to many nonprofit organizations. Of those Internet users who are likely to make a donation online, 52% have purchased a product or service over the Internet, making online ticket buyers ripe prospects for online giving.
The operative word here is "potential." Charitable giving over the Internet is still in its infancy. CMS estimates that of the $135 billion donated by individuals in the US in 1998, $192 million was contributed electronically via the Internet.
While the Internet is unlikely to totally replace more traditional approaches to giving in the immediate future, nonprofit organizations are beginning to explore Web-based fundraising techniques and tools. Many nonprofit fundraisers agree that the Internet will eventually become an important part of the development office's toolbox for raising money and building relationships with donors. The key is to begin experimenting with these tools.
And many nonprofit membership organizations have been testing the waters. The most common approach to online donations found on these Web sites is to simply publish the organization's membership or annual fund brochure. The pitch also includes a membership form that the visitor can print and send to the organization via U.S. postal mail with a check or fax with a credit card number.
On some Web sites, the visitor is also given the option of phoning the development office with a credit card number. Some organizations, such as Joyce Theatre, have used their Web site to build direct mail prospect lists. As e-commerce sales continue to grow ($75 billion in transactions in 1999), completing the donation transaction online eventually will become a necessary convenience for donors and a standard feature at most nonprofit Web sites. But where do you start?
There is a whole industry of vendors catering to the nonprofit communigy who want to transform Web surfers into Web donors. Browse through the Cybergift discussion forum and you will find a dizzying array of services and products. According to Putnam Barber, editor of the Internet Nonprofit Center, there are more than 80 vendors on his online fundraising resources list.
It is important to remember that a specific technology or vendor should not drive your online fundraising strategy. It should be part of an overall fundraising plan based on a thorough assessment of your organization's fundraising efforts and use of technology. Some questions include:
- What are your current fundraising strategies?
- How can online fundraising enhance your offline activities?
- How does your Web site support fundraising strategies?
- How can your Web site be a more effective solicitation, cultivation, or stewardship tool?
- If your site offered the secure online transactions, would your Web visitors use it? Why or why not?
- What is the potential for new revenue and/or new donors?
- Does your organization transact any other business on its Web site?
- How might e-commerce and online donations be integrated?
The next step is to explore the various approaches for incorporating online fundraising technologies into your plan. The options essentially fall into three different types: Charity Malls, Donation Portals, and Your Own System.
While each has its benefits and disadvantages, they may not necessarily be mutually exclusive. An online fundraising plan might include a combination of several options.
Option 1: Charity Malls
Remember as a kid when your little league team or Girl Scout group sold candy bars or cookies to raise money for uniforms or a community project? For each candy bar sold, the organization received a percentage of the sale.
Charity Malls are the Web's version of this concept. Your organization places a banner ad link to an online merchant or mall on your organization's Web site. Web donors click on the link and are taken to an e-commerce site where they can purchase a variety of items, designate their favorite cause or charity, and the merchant or mall donates a percentage (usually 5%) of the sales revenue back to your organization.
For nonprofits, the main advantage is that it requires no investment in staff, time, or technology. Your organization simply collects a check. However, that check can take a long time to find its way into your organization's cash flow as Charity Malls set a minimum of collected contributions before they issue a check.
And, it might be a small one unless your organization can generate significant traffic and purchases at the online mall. If your site has a lot of supporters and those supporters are comfortable with shopping online and purchase products, why not sign up with one?
There are a growing number of Charity Malls. One of the more popular Charity Malls is GreaterGood which contributes between 5-15% of the sale to an IRS-registered 501(c)(3) charitable organization. Shoppers can designate a specific nonprofit organization or select from a list of charities featured on the site.
The site has more than 80 well-known e-merchants, including Neiman Marcus and the Sharper Image, whose shoppers probably share a lot of common demographics with arts consumers. As a nonprofit organization, you can register easily online. Other Charity Malls include Igive.com and shop4charity.com.
One of the potential drawbacks of Charity Malls is that according to IRS guidelines shoppers are not eligible for tax deductions on the money being donated to nonprofit organizations. The IRS limits tax deductibility for charitable contributions to the amount paid over and above the fair market price for an item. Since the prices at most Charity Malls are the same as purchased directly from the merchant, no tax-deductible event occurs.
Some Charity Mall vendors argue that for some consumers the amount is so small, the tax deduction isn't worth dealing with the paperwork. A couple of vendors are prevailing to tax authorities to find ways to preserve tax deductibility, but no clear rulings have been made.
One of the best ways to compare vendors is to contact nonprofits already listed on the site and ask if their experience has been positive. You will also want to do a bit of comparison shopping by reviewing the fine print and specifics for each vendor on their Web site before you sign on the electronic line. Questions that will help you compare vendors:
- How many merchants, nonprofits, and consumers participate?
- How does the Charity Mall promote its site?
- What is the monthly traffic?
- Are there any up front or hidden costs?
- Does the Mall restrict recipients to 501(c)3 organizations?
- What is the retail mix? Are these products of interest to YOUR donors?
- What is the percentage of each sale that is contributed to your organization?
- What are the rules in terms of banner/ad link placement on your Web site and other requirements for promoting the Charity Mall on your Web site or to your audiences?
- What is the minimum amount that needs to accrue before the Mall issues a check?
- How is the check issued (snail mail or electronically)?
- Can you enter into relationships with more than one Charity Mall?
- What is the privacy policy of the site and how is it enforced?
Option 2: Donation Portal
A donation portal Web site typically provides information about many different nonprofit organizations. Web visitors can select their favorite charity and make a donation online using their credit card.
The Donation Portal processes the transaction, acknowledges the gift, and forwards the money along with a report including donor information to the nonprofit organization.
Donation Portals do not typically have a setup or monthly fee, although some retain a small percentage to cover credit card fees. Examples include: AOL Foundation's Helping.org, Charitable Way and All Charities.
The main advantages for nonprofits are that it requires a minimal investment in time, staff, or technology to experiment. Several of the Donation Portals are marketing their services to corporations to assist with employee giving via the company's intranet as well as heavily promoting their sites on other portal sites to drive visitor traffic. To evaluate vendors, visit their sites and read their materials. Some good questions to ask:
- What and how many other nonprofits are included on the site?
- What is the cost of registering?
- Are there any restrictions in terms of participating or working with other online fundraising vendors?
- Can the nonprofit organizations provide a direct link to organization's information page on the charity engine site?
- What is the fee? Is it a flat fee, based on transactions, or combination?
- Does the Donation Portal make its revenue from other sources than fees? Is it in the business to sell services to the nonprofit?
- How does the Donation Portal promote its site?
- What is the traffic?
- What are the legal risks?
Like Charity Malls, Donation Portals are still in their infancy. So, don't expect to see huge jumps in income right away. It is also important to be aware of the potential legal issues.
Any US non-profit that decides to do fundraising over the Internet is required to register as a professional solicitor in all states that require it. To make the process more manageable, there is now a Universal Registration Statement that is accepted by many states that require it. If you decided to sign up with a Donation Portal, make sure that the vendor has registered so that your organization will be protected from any legal exposure.
Option 3: Your Own System
While this option enables your organization to have complete control of the transaction process, it requires a substantial investment of time, money, and expertise. If you want to get an overview of what is involved, take this E-Commerce Tutorial from Wired's Web Monkey.
This has worked well with a number of arts organizations that have already installed an e-commerce system to accept credit card information for purchasing tickets and merchandise from gift shops. They can more easily incorporate online transactions for donations (assuming, of course, that the box office software can talk with the fundraising software!). The Atlanta Symphony is one example.
The Metropolitan Museum has created a special membership category called "Net Met" for online visitors. For an annual fee of $50, Web visitors enjoy some unique "online" benefits such as discounts and a screen saver. Met Net members can join online at the Met's Online gift shop. According to museum membership staff, as of late November, 1999, there were 2,390 Met Net Members.
If the thought of implementing an e-commerce system in-house sounds like a nightmare, there are some less complicated and less costly strategies such as using a "PSP" or "Payment Service Provider."
A PSP is a vendor who will manage the entire back-end of your donations and payments. The PSP enables your organization to accept credit card transactions by providing a link on your organization's Web site to a pledge or donation page that resides on the PSP's server.
Most PSPs allow you to customized the look of your donation page, thank you message, and reports. Rates range from flat monthly fees to a tiered per transaction or gift amount fee. PSPs that cater to nonprofit include RemitNet and DonorNet. Some questions to help you evaluate vendors:
- Does the vendor offer secure transactions?
- What is the level of technical support?
- How reliable is the service?
- How much does it cost? What is the per transaction fee? What are the set up costs?
- What is the length of the contract for services?
- How long does it take to set up an account?
- What does the organization need to provide/do for the set up?
- How much control/customization is available on the donation solicitation page or is it simply a "submit" link?
- Can the confirmation email/screen be customized?
- What type of customer support is provided to the donor should there be a problem?
- What type of reporting is available to organizations online or via email?
- Can it be customized? Can it be exported into my database?
Online fundraising is still in the embryonic stages of development. With new vendors appearing and disappearing and no available "consumer reports" type research, the challenge fundraisers have is to become knowledgeable consumers. Technologically savvy nonprofit organizations that thoughtfully explore the tools will be better positioned to be successful cyber fundraisers in the future.
If you have trouble reading this e-newsletter due to formatting issues, or visible HTML code, or if you would like to discuss content-related issues, please contact Bill Freeman, NRC e-Newsletter Editor at wjf@daremightythings.com.
Hypertext links and other references to non-CCF products and services are provided for information only and do not constitute endorsement or warranty, express or implied, by the CCF, DHHS, or U.S. Government, as to their suitability, content, usefulness, functioning, completeness, or accuracy.