Why are There Fees with Online Fundraising?

When considering fundraising options for your nonprofit, you know you’re missing a huge piece of the market if you don’t accept online donations, but you may be wary of being charged those dreaded fees.

Nonprofits typically encounter upfront costs with traditional forms of fundraising, such as events and direct mail campaigns, but this is a widely established and accepted part of the nonprofit game.

When it comes to most of our online interactions, we’re accustomed to doing a lot of things free of charge.  Well, free to us anyway.  So, a common question among nonprofits like yours is, why are there fees associated with accepting online donations?

Fees Make Online Donations Possible

There are fees associated with every single online fundraising platform for at least one of two possible reasons:  Card processing fees and platform revenue fees.

1. Card Processing Fees

There are always card processing fees.  These fees are minimal, typically 2.7% +/- of the donation.  If you were to set up your own online payment account to accept online donations via your website (through PayPal, Stripe or other), card processing fees would still apply.

2. Platform Revenue Fees

Online fundraising platforms will charge a standard card processing fee PLUS an additional fee for the service they’re providing. After all, a company of people is working behind the scenes to keep that platform up and running, so they need money to continue their business and provide valuable services – just like you do!

Some platforms charge a flat fee upfront, while others charge based on a percentage of whatever you raise through their platform (and some platforms charge both ways).

Others will even charge more based on how many contacts or supporters you have interacting with you through their platform or based on how many features you want to use.  The pricing possibilities are endless.

Even with all that potential hassle, the advantages of using an online fundraising platform through a company rather than trying to do it on your own are numerous and those benefits ultimately depend on the company you choose to work with.

Even with Fees, Fundraising Online is Still Less Costly Than Offline

With traditional fundraising, nonprofits typically use direct mail campaigns. Consider the cost of materials alone, including paper, ink, envelopes, and postage.  Not to mention the people at your organization helping with the mailing.  These costs can run a pretty penny, especially if these letters are being sent out to hundreds or thousands of people!

In addition, someone has to handle any donations that come in, endorse and deposit checks, manually record donations, and so on. This is valuable time and resources being spent pushing paper that could be spent doing other important things, like donor outreach and engagement.

Holding large events (like annual golf tournaments or galas) means that your nonprofit will incur all sorts of upfront and guaranteed costs. You have to give the caterer a minimum headcount, pay for servers and bartenders, prizes, hall rental, brochures, etc. Hopefully, you can find sponsors and enough attendees to turn the event into a positive cash flow.

There are also a lot of external factors. What if it rains during the golf tournament, for instance? A lot of wasted time and effort can go into an event that may end up in the red, which could create a significant negative impact on funds if the nonprofit relies heavily on that event for its yearly revenue.

Online campaigns completely bypass these cost and time issues.  And although it isn’t 100% free of charge, prices for online fundraising services are usually fairly transparent (again, depending on the platform being used).

Online Fundraising Has Less Financial Risk

With a fundraising event, for instance, you face the risk of handling cash, and then having to deal with administrative overhead and getting the money to the bank.  In the end, it takes more time and resources than the safe and reliable electronic handling you get with online fundraising.

Making donations online is so easy, reliable, and convenient, that many (if not most) online donors opt to cover any additional fees that a nonprofit may incur from their donation.  Just to give you an actual figure, an average of 65% of donors through GiveGab’s giving platform covered all fees in 2015 and 2016.

The reason is simple:  Donors see the value in online transactions and like not having to deal with handling cash, checks, and even in-person transactions!

Learn more about what nonprofits are actually paying to raise money online in our articles about Effective Rates with Online Fundraising.

Regardless of which method of fundraising you choose, there will always be fees associated.  The real focus should be on which methods will be the most effective for your donors.