The Rise of the Middle Man in Fundraising

On January 20th, Henry Green was born to John & Sarah Green. Henry’s parents, the generous spirits that they are, asked their friends, family, and well-wishers to forgo the standard deluge of baby presents. Instead, they asked people to make a donation to help fight malaria through Malaria No More.

Malaria No More is one of the world’s leading charities fighting malaria in Africa. For exactly $10, they can protect an entire sleeping site from malaria for up to five years. As of the writing of this post, donations on behalf of Henry Green are now enough to protect over 250 sleeping sites (or an estimated 1,000 people).

That’s the good news. The bad news is that, of the 250 sleeping sites that Malaria No More could be helping with this donation, only 231 sleeping sites will be served. That’s an estimated 75 people (most likely much more) that won’t be (but should be) sleeping under a mosquito net.

Find out more after the jump…

How could this be?

The reason actually has nothing to do with Malaria No More – and everything to do with the way in which the donations were collected. John Green, like many Americans trying to raise funds for charity, decided to use the website FirstGiving.com.

FirstGiving.com allows anyone to create a custom donation page for their favorite charity. Anyone making a page can set a fundraising goal, provide a deadline, and allow donors to leave comments and rally others to donate. It’s interactive and a very “Web 2.0″ way to fundraise.

What makes FirstGiving.com great is that it avoids the mess of having to handle the money yourself. FirstGiving processes all donations for you and sends the funds to the charity of your choice. No need to worry about accounting or wiring funds. FirstGiving is essentially your trusted middle man.

FirstGiving allows anyone to fundraise for their favorite charity. Progress bars, custom images, donor comments, and more make this a very interactive and community-based way to fundraise.

But what’s the catch?

The thing that gives me pause about FirstGiving.com is that, for the mere privilege of acting as a middle man, they take $7.50 from every $100 donated. For anyone who has raised funds for charity via PayPal, you’ll know that FirstGiving is charging more than double what it would cost to raise the funds yourself.

But it’s just 7.5%, right? Well, think of it this way. For every $133.33 donated to Malaria No More via FirstGiving.com, one family that could have received a mosquito net will have to go without. That’s one family that’s at risk of dying when they shouldn’t be. Hate to say it but it’s true: 7.5% is the difference between life and death.

But what is fair compensation for a middle man?

Don’t get me wrong. I believe everyone in this world has a right to earn a living. The staff at FirstGiving.com are no doubt highly passionate and hardworking people that deserve to be compensated for their work – even if that work is helping to raise funds to help charitable causes.

But how much should it cost to be a middle man? Let me put this in context: Save the Children is one of the biggest charities in the world. They take a cut from every dollar they receive. With that cut they can hire engineers to do water projects, rent warehouses to store emergency relief, and have offices right in the communities they serve.

How much does Save the Children take from every dollar to fund this vast international operation? Eight percent. Why does FirstGiving.com, a small 20-person company based in Massachusetts, need to have nearly as big a percentage cut as Save the Children?

In fact, why isn’t FirstGiving.com (the US site) at least as competitive as their counterparts in the United Kingdom? I am a huge fan of the UK version of FirstGiving – called JustGiving.com. Why? Because 100% of every dollar donated (by UK citizens) goes straight to the charity.

If you are not a UK citizen, JustGiving will still handle your donation – but they will just charge a mere 5% fee. This needs to be emphasized: if you are American, more of your money reaches the charity of your choice if you use the UK site instead of the American site.

The Need for the Web 2.0 Middle Man

Efficiency aside, the reason why sites like JustGiving, FirstGiving, and Facebook Causes (which charges 4.75%) need to exist is because most charities simply don’t get it. John Green could have easily pointed people to Malaria No More’s own official donation page. While that does guarantee 100% of the funds go directly to the charity – it is fundraising without community interaction.

Using only the official donation form, John could not set a fundraising goal, time limit, or give an explanation as to who the donations are in honor of. In turn, donors could not track how many donations were made nor would they be able to interact (via donation page comments) with other supporters.

With so many of us engaged in “Web 2.0″, why is giving money to important causes stuck in “Web 1.0″? It’s because most charities don’t have any impetus to change. Their biggest donors are still baby boomers and most charities fail to see the value in investing to become more accessible to a tech savvy generation.

In many respects, FirstGiving, JustGiving, Facebook Causes, and even what I’m doing are ways to try and push old fashioned charities into the 21st century. The problem is that many charities are dragging their feet, kicking, and screaming every step of the way. Although the tragedy in Haiti is pushing many charities forward, there is still a long way to go. The charities that adapt the fastest will be the ones to survive.

Survival of the Fittest

Even though Save the Children has been around since the great depression and is able to build clean water wells at a price few charities can beat ($2,500 per well), most of my friends tend to donate to Charity: Water instead. Why? Charity: Water makes it easy for you to donate and bring your community with you.

If I wanted to, I could setup a donation page at mycharitywater.org in under five minutes. I can have a custom logo, fundraising goal (at the cost of $5,000 per well), and give an explanation for my fundraising. Donors, in turn, can leave messages and track the progress in real-time. And, unlike FirstGiving, JustGiving, or Facebook Causes, there is no transaction fee.

Similarly, in the face of the crisis in Haiti, on the ground charities like Partners in Health have made it easy for people to setup a custom donation page right on their own official website. Sure, you could use middle men instead – but then part of your donation will never reach the shores of Haiti.

Wake-Up Call to Charities

I once told staff at Save the Children that their organization’s capacity to adapt to the needs of my generation in the next five years will determine whether or not they will survive fifty years down the road. That isn’t an exaggeration – and that statement is by no means limited to any one particular charity.

The socially conscious in my generation are making it clear that they value convenience and community-interaction over cost-efficiency. The more charities embrace this kind of fundraising, the quicker this doesn’t have to be a choice between efficiency vs. interaction. And, the charities that embrace this first are the ones that will earn the loyalties that will last years to come.

  • Christina

    Wow Shawn! You make a lot of good points here. It’s all so true. I just wish that charities would listen… This is one of the reasons I love following your work. Since you aren’t any part of an organization (just a community!) you provide thoughts that otherwise might not have been seen. Keep up the good work! DFTBA!

  • Christina

    Wow Shawn! You make a lot of good points here. It’s all so true. I just wish that charities would listen… This is one of the reasons I love following your work. Since you aren’t any part of an organization (just a community!) you provide thoughts that otherwise might not have been seen. Keep up the good work! DFTBA!

  • Jared

    Great read. Hopefully one day there will be some sort of global fundraising community, linked through technology, that will be able to solve any problem in existence through a constant state of helping the world.

    If only there were some sort of free webservice, like a youtube or facebook just for making the world a better place. Then the charities would all join and interact with people also using the same service, creating a global giving community. That way it isn’t about us giving money to faceless charities where we don’t know where our money goes, but rather a large community interacting with charities (and them interacting back) to help make the world a better place together.

    Mostly I just wish making the world a better place worked a lot more like the uncultured project.

  • Jared

    Great read. Hopefully one day there will be some sort of global fundraising community, linked through technology, that will be able to solve any problem in existence through a constant state of helping the world.

    If only there were some sort of free webservice, like a youtube or facebook just for making the world a better place. Then the charities would all join and interact with people also using the same service, creating a global giving community. That way it isn’t about us giving money to faceless charities where we don’t know where our money goes, but rather a large community interacting with charities (and them interacting back) to help make the world a better place together.

    Mostly I just wish making the world a better place worked a lot more like the uncultured project.

  • http://www.youtube.com/mototigg Liza

    I think you are right in what you are saying Shawn, charity’s do need to “upgrade”. My concern though is not in what you are saying, but how you are saying it. Not all charities have the capabilities to become web 2.0 compatable. Save the Children is a charity that has a stedy stream of donors so that costs to do things such as “upgrading” are possible for them and it is a matter of just doing it at some point. I know for a fact though that some of the charities I have worked with who are smaller don’t have the capability to pay their rent, yet alone upgrade their website. I agree that 7.5% is too much of a cut, I think the middle men can help many charities who can’t upgrade. The biggest issue I feel is the cut the middle men take rather than charities upgrading.

  • http://www.youtube.com/mototigg Liza

    I think you are right in what you are saying Shawn, charity’s do need to “upgrade”. My concern though is not in what you are saying, but how you are saying it. Not all charities have the capabilities to become web 2.0 compatable. Save the Children is a charity that has a stedy stream of donors so that costs to do things such as “upgrading” are possible for them and it is a matter of just doing it at some point. I know for a fact though that some of the charities I have worked with who are smaller don’t have the capability to pay their rent, yet alone upgrade their website. I agree that 7.5% is too much of a cut, I think the middle men can help many charities who can’t upgrade. The biggest issue I feel is the cut the middle men take rather than charities upgrading.

  • Sean

    Hi Shawn,

    Good stuff but not sure you’re right about JustGiving. Their website talks about a 5% fee and doesn’t seem to differentiate between UK and ex-UK donors that I can see?

    http://www.justgiving.com/how-justgiving-works/

    Another charity worth mentioning that has it’s own donation facility is Against Malaria – http://www.againstmalaria.com – as recommended by GiveWell.

  • Sean

    Hi Shawn,

    Good stuff but not sure you’re right about JustGiving. Their website talks about a 5% fee and doesn’t seem to differentiate between UK and ex-UK donors that I can see?

    http://www.justgiving.com/how-justgiving-works/

    Another charity worth mentioning that has it’s own donation facility is Against Malaria – http://www.againstmalaria.com – as recommended by GiveWell.

  • http://uncultured.com Shawn

    @Sean – JustGiving charges 5% on all donations. But, for UK citizens, it takes the 5% out of the UK gov’ts matching grants to go with every donations. Meaning, if a UK citizen donates $10 (or 10 pounds), 100% of that goes to the charity. The 5% is deducted from the UK government’s matching donation.

  • http://uncultured.com Shawn

    @Sean – JustGiving charges 5% on all donations. But, for UK citizens, it takes the 5% out of the UK gov’ts matching grants to go with every donations. Meaning, if a UK citizen donates $10 (or 10 pounds), 100% of that goes to the charity. The 5% is deducted from the UK government’s matching donation.

  • http://www.firstgiving.com Beth at FirstGiving

    Hi Shawn, this is Beth, Marketing Coordinator at FirstGiving. It’s good to see so many people concerned about donors’ money getting to nonprofits as efficiently and transparently as possible. All of us at FirstGiving are concerned about that as well.

    Both FirstGiving and JustGiving’s fee are structured the same way and are under 5% (plus credit card charges). In the UK, tax payers can claim Gift Aid. This covers the cost of our fee and automates the tax rebate directly to the nonprofit.

    With the fee FirstGiving earns on donations, we provide our nonprofit partners with secure donation processing, unlimited customer support for staff, supporters and donors, fundraising planning and strategy sessions, event management, data management, and a product that constantly evolves with the market and in response to our client’s needs. Average costs of professional fundraising can be upwards of $0.20 on the dollar, so many nonprofits are willing to partner with FirstGiving for the exceptional value we offer. Additionally, we frequently hear that the costs of building and supporting their own their own system in-house far outweigh the benefits of using FirstGiving.

    FirstGiving’s product is not the right fit for every organization, but for thousands of small and mid-sized organizations, FirstGiving pages have allowed them to benefit from the support of people like John and Sarah Green. We’ve helped nonprofits to exceed their fundraising goals and garner donations from networks they would only have access to through our fundraising pages. And we’re really proud to have helped thousands of people like John and Sarah raise over $120 million online for causes they care about in our mission to expand the world of giving.

    If you’d like to speak further; please feel free to contact me. I’d be happy to speak to any additional questions you may have.

    Warmly,

    Beth Pickard

  • http://www.firstgiving.com Beth at FirstGiving

    Hi Shawn, this is Beth, Marketing Coordinator at FirstGiving. It’s good to see so many people concerned about donors’ money getting to nonprofits as efficiently and transparently as possible. All of us at FirstGiving are concerned about that as well.

    Both FirstGiving and JustGiving’s fee are structured the same way and are under 5% (plus credit card charges). In the UK, tax payers can claim Gift Aid. This covers the cost of our fee and automates the tax rebate directly to the nonprofit.

    With the fee FirstGiving earns on donations, we provide our nonprofit partners with secure donation processing, unlimited customer support for staff, supporters and donors, fundraising planning and strategy sessions, event management, data management, and a product that constantly evolves with the market and in response to our client’s needs. Average costs of professional fundraising can be upwards of $0.20 on the dollar, so many nonprofits are willing to partner with FirstGiving for the exceptional value we offer. Additionally, we frequently hear that the costs of building and supporting their own their own system in-house far outweigh the benefits of using FirstGiving.

    FirstGiving’s product is not the right fit for every organization, but for thousands of small and mid-sized organizations, FirstGiving pages have allowed them to benefit from the support of people like John and Sarah Green. We’ve helped nonprofits to exceed their fundraising goals and garner donations from networks they would only have access to through our fundraising pages. And we’re really proud to have helped thousands of people like John and Sarah raise over $120 million online for causes they care about in our mission to expand the world of giving.

    If you’d like to speak further; please feel free to contact me. I’d be happy to speak to any additional questions you may have.

    Warmly,

    Beth Pickard

  • http://uncultured.com Shawn

    Hi Beth! Thanks for taking the time to post a comment. It’s great that the folks at FirstGiving have taken a notice of this blog post. I hope I have written about this topic in a fair and accurate manner.

    I’m going to copy and paste your response into a separate blog post so that anyone coming to this site can see your comments without having to dig around.

  • http://uncultured.com Shawn

    Hi Beth! Thanks for taking the time to post a comment. It’s great that the folks at FirstGiving have taken a notice of this blog post. I hope I have written about this topic in a fair and accurate manner.

    I’m going to copy and paste your response into a separate blog post so that anyone coming to this site can see your comments without having to dig around.

  • http://citizeneffect.org Dan Morrison

    Shawn, great post. Citizen Effect (www.CitizenEffect.org) is another middle man. I agree with everything you said. At the moment, 100% of what people raise/give through Citizen Effect goes directly to the field partner on the ground executing the project (e.g., building the well or administering the childcare center). In full disclosure, we will be taking out the credit card fees in the future.

    We see a couple things going on in the market.
    1) People hate to see any percentage of their donation taken away from the nonprofit they give to through a middle man. BUT at the same time, if you give people the choice to give you a tip, they say, “sure, Citizen Effect is providing a good service.” Since the beginning of the year, we have seen 80% of donors give us a voluntary tip.
    2) people are less inclined to give a donation and more motivated to ‘buy impact’. This means that the psychology of giving is radically changing. Giving to the Red Cross or a large black box organization that you trust to do your good for you is waning. People want a clear line of sight to know where their money went and the impact it had on the ground. It is just like a online newspaper subscription. Today you can pay WSJ $2.29 a week to get gain access to their published information. The giving/donor market is similar. People give you $50 and they want a report from the field telling them the well was built and women are starting businesses with their new found time. That is the “product” they bought with their donation. Donations are now transactions where money is given in exchange for information about the impact the money has had on the community.

    And that is the role middle men like Citizen Effect are starting to play – creating the platform where the donation/impact transaction can take place.

    Thanks for the post.
    Dan

  • http://citizeneffect.org Dan Morrison

    Shawn, great post. Citizen Effect (www.CitizenEffect.org) is another middle man. I agree with everything you said. At the moment, 100% of what people raise/give through Citizen Effect goes directly to the field partner on the ground executing the project (e.g., building the well or administering the childcare center). In full disclosure, we will be taking out the credit card fees in the future.

    We see a couple things going on in the market.
    1) People hate to see any percentage of their donation taken away from the nonprofit they give to through a middle man. BUT at the same time, if you give people the choice to give you a tip, they say, “sure, Citizen Effect is providing a good service.” Since the beginning of the year, we have seen 80% of donors give us a voluntary tip.
    2) people are less inclined to give a donation and more motivated to ‘buy impact’. This means that the psychology of giving is radically changing. Giving to the Red Cross or a large black box organization that you trust to do your good for you is waning. People want a clear line of sight to know where their money went and the impact it had on the ground. It is just like a online newspaper subscription. Today you can pay WSJ $2.29 a week to get gain access to their published information. The giving/donor market is similar. People give you $50 and they want a report from the field telling them the well was built and women are starting businesses with their new found time. That is the “product” they bought with their donation. Donations are now transactions where money is given in exchange for information about the impact the money has had on the community.

    And that is the role middle men like Citizen Effect are starting to play – creating the platform where the donation/impact transaction can take place.

    Thanks for the post.
    Dan

  • Mike

    Shawn,

    I think you’re missing some aspects of this issue.

    First of all, any time someone makes a donation with their credit card, whether it is through Firstgiving, Justgiving, or through a charity’s website, there is a fee charged for the credit card processing. These fees are usually around 2% or 3%. So, if you donate $100 directly to Charity: Water through their website, they still only get $97.

    So, the 7.5% fee from Firstgiving includes that. They’re only getting 5% for their operations. On the other hand, the 8% from Save the Children is probably not including the credit card fees. They’re taking 8% of the money they receive in the end.

    For your argument that Save the Children deserves a higher percentage because they do more…that doesn’t really make sense. There is a reasonable amount of overhead. Save the Children takes in a lot more money than Firstgiving, so they can do more with it. But, they shouldn’t need a higher percentage, just higher volume, which is exactly what is happening.

    And to your point about charities using web 2.0. Having a small-to-midsized non-profit design a highly functional website tool that allows for communities to develop would cost tens of thousands of dollars, probably a lot more than Firstgiving or other websites are taking. It’s simply not a feasible idea. So, instead of paying for a piece of technological infrastructure that they can’t afford or justify, they outsource to middle men…hence the need in the first place.

    With all that said, there is a great website called http://www.razoo.com that I use for my organization. Razoo has foundation partners who cover even the cost of the credit card processing fee. So, if you donate $100 to a charity through Razoo, they actually get MORE than you would if you donated through the charity’s website. I have had a great experience with Razoo so far, and it’s something you should look into.

  • Mike

    Shawn,

    I think you’re missing some aspects of this issue.

    First of all, any time someone makes a donation with their credit card, whether it is through Firstgiving, Justgiving, or through a charity’s website, there is a fee charged for the credit card processing. These fees are usually around 2% or 3%. So, if you donate $100 directly to Charity: Water through their website, they still only get $97.

    So, the 7.5% fee from Firstgiving includes that. They’re only getting 5% for their operations. On the other hand, the 8% from Save the Children is probably not including the credit card fees. They’re taking 8% of the money they receive in the end.

    For your argument that Save the Children deserves a higher percentage because they do more…that doesn’t really make sense. There is a reasonable amount of overhead. Save the Children takes in a lot more money than Firstgiving, so they can do more with it. But, they shouldn’t need a higher percentage, just higher volume, which is exactly what is happening.

    And to your point about charities using web 2.0. Having a small-to-midsized non-profit design a highly functional website tool that allows for communities to develop would cost tens of thousands of dollars, probably a lot more than Firstgiving or other websites are taking. It’s simply not a feasible idea. So, instead of paying for a piece of technological infrastructure that they can’t afford or justify, they outsource to middle men…hence the need in the first place.

    With all that said, there is a great website called http://www.razoo.com that I use for my organization. Razoo has foundation partners who cover even the cost of the credit card processing fee. So, if you donate $100 to a charity through Razoo, they actually get MORE than you would if you donated through the charity’s website. I have had a great experience with Razoo so far, and it’s something you should look into.

  • http://uncultured.com Shawn

    @Mike – you raise excellent points, let me address a few.

    First, charities like Charity: Water actually do give 100% pass-through. Here’s the documentation:

    http://www.charitywater.org/donate/

    If you click “Learn about the 100%” you’ll note they explicitly state that they will cover the the credit card and PayPal transaction fees. You donate $100, they will pass $100 to their partners on the ground.

    Second, I completely agree with what you are saying re: volume. If you are a big charity and get a lot of donations, you can have a small percentage cut.

    But, as the FirstGiving has pointed out themselves – they have helped process over $120 million dollars for charities. That means, over $9 million dollars never went to the charities themselves. To put that in perspective, Facebook Causes (arguably around the same level of traffic and need for overhead) takes just a little over half of what FirstGiving does.

    Thirdly, from a technical perspective and as a nerd, it really doesn’t take that much to setup a custom donation page. I’ve seen people setup simple comment/interaction/progress bars by those cyberbegging for free stuff. If a cyberbeggar can do it – so can a charity.

  • http://uncultured.com Shawn

    @Mike – you raise excellent points, let me address a few.

    First, charities like Charity: Water actually do give 100% pass-through. Here’s the documentation:

    http://www.charitywater.org/donate/

    If you click “Learn about the 100%” you’ll note they explicitly state that they will cover the the credit card and PayPal transaction fees. You donate $100, they will pass $100 to their partners on the ground.

    Second, I completely agree with what you are saying re: volume. If you are a big charity and get a lot of donations, you can have a small percentage cut.

    But, as the FirstGiving has pointed out themselves – they have helped process over $120 million dollars for charities. That means, over $9 million dollars never went to the charities themselves. To put that in perspective, Facebook Causes (arguably around the same level of traffic and need for overhead) takes just a little over half of what FirstGiving does.

    Thirdly, from a technical perspective and as a nerd, it really doesn’t take that much to setup a custom donation page. I’ve seen people setup simple comment/interaction/progress bars by those cyberbegging for free stuff. If a cyberbeggar can do it – so can a charity.

  • Jim

    Shawn-
    Thank you for a very thoughtful and thought provoking post.

    Regarding the Charity:Water example above; the fact 100% of its online donations are “passed-through” is somewhat irrelevant given that money is fungible and Charity:Water raises additional money to cover administrative overhead via…”A group of private donors, foundations and sponsors.”

    While it is good marketing to say that 100% of online donations will pass through, it is not totally accurate as it relates to total dollars raised. The cost of fundraising is unclear; as is the percent of total dollars raised ultimately passing through to the field.

    However when it comes to FirstGiving the cost of fundraising is very clear, 7.5%, including transaction fees. 7.5% may or may not be right, but at least one can make an informed decision.

    I believe the critical point of your post and the comments is the need for greater transparency into the costs of fundraising as well as the General & Administrative expenses of many Non-Profits.

    This transparency will force nonprofits to become more efficient or risk losing out as dollars are redirected to organizations that can maximize the percentage of each dollar going directly a cause.

    It is exactly this type of transparency and efficiency that FirstGiving/JustGiving provides the donor marketplace. Their current number may be 7.5% but I would bet that if a viable competitor came into the marketplace with a more compelling value proposition, FirstGiving would be forced to lower its prices.

    Lower fundraising costs whether via middlemen or directly will help to achieve the ultimate goal of ensuring every dollar raised provides its maximum benefit.

    Again, great post and thank you.
    JW

  • Jim

    Shawn-
    Thank you for a very thoughtful and thought provoking post.

    Regarding the Charity:Water example above; the fact 100% of its online donations are “passed-through” is somewhat irrelevant given that money is fungible and Charity:Water raises additional money to cover administrative overhead via…”A group of private donors, foundations and sponsors.”

    While it is good marketing to say that 100% of online donations will pass through, it is not totally accurate as it relates to total dollars raised. The cost of fundraising is unclear; as is the percent of total dollars raised ultimately passing through to the field.

    However when it comes to FirstGiving the cost of fundraising is very clear, 7.5%, including transaction fees. 7.5% may or may not be right, but at least one can make an informed decision.

    I believe the critical point of your post and the comments is the need for greater transparency into the costs of fundraising as well as the General & Administrative expenses of many Non-Profits.

    This transparency will force nonprofits to become more efficient or risk losing out as dollars are redirected to organizations that can maximize the percentage of each dollar going directly a cause.

    It is exactly this type of transparency and efficiency that FirstGiving/JustGiving provides the donor marketplace. Their current number may be 7.5% but I would bet that if a viable competitor came into the marketplace with a more compelling value proposition, FirstGiving would be forced to lower its prices.

    Lower fundraising costs whether via middlemen or directly will help to achieve the ultimate goal of ensuring every dollar raised provides its maximum benefit.

    Again, great post and thank you.
    JW

  • http://uncultured.com Shawn

    Hi Jim – thanks for your comment. This is exactly the kind of discussion I was hoping this blog post would spur.

    What I’m hearing a lot from comments such as yours, FirstGiving, and Mike’s is a very important POV from that of an organization or non-profit.

    But I see myself as a donor. And, as a donor, when I donate $10 or $100 – I want that money to go directly to helping those in need. Realistically, I understand that charities need to take a cut to operate, so at the very least, I am expecting 100% of the donation will go to the charity.

    Your comment that passthrough is “irrelevant” or Mike’s comment that my talk about percentage cuts “doesn’t make sense” is coming from the perspective of the organization. To me, as a donor, it is very relevant and makes a lot of sense. If a credit card processing company doesn’t want to waive its fees for my charitable donations – I have no problem with a wealthy benefactor making a matching donation to ensure that my donation remains intact and goes where I intend it to go.

    And, I would also argue that middle men sites like FirstGiving have a long way to go before their service fees are clear. Many people, since reading this blog post, have contacted me saying that had no idea that such service fees exist. It’s in the fine print – when it should really be front and center. If I buy a product – I am shown right up front what the taxes and shipping charges are. Why doesn’t FirstGiving as prominently at “checkout” display their cut?

    And, your comment also seems to suggest that there is no competition between FirstGiving and other middle men. Right this minute, there is an alternative service (Facebook Causes) which takes a fraction of the service charges that FirstGiving does. But FirstGiving has yet to show any impetus to compete or lower it’s costs – or even lower the service fee charges to that of their UK sister site.

    This needs to be discussed, we need to be aware of this, and we as donors need to be informed where our money goes and what we are comfortable with where it goes. This is worth discussing because, as the risk of sounding hyperbolic, lives are literally on the line.

  • http://uncultured.com Shawn

    Hi Jim – thanks for your comment. This is exactly the kind of discussion I was hoping this blog post would spur.

    What I’m hearing a lot from comments such as yours, FirstGiving, and Mike’s is a very important POV from that of an organization or non-profit.

    But I see myself as a donor. And, as a donor, when I donate $10 or $100 – I want that money to go directly to helping those in need. Realistically, I understand that charities need to take a cut to operate, so at the very least, I am expecting 100% of the donation will go to the charity.

    Your comment that passthrough is “irrelevant” or Mike’s comment that my talk about percentage cuts “doesn’t make sense” is coming from the perspective of the organization. To me, as a donor, it is very relevant and makes a lot of sense. If a credit card processing company doesn’t want to waive its fees for my charitable donations – I have no problem with a wealthy benefactor making a matching donation to ensure that my donation remains intact and goes where I intend it to go.

    And, I would also argue that middle men sites like FirstGiving have a long way to go before their service fees are clear. Many people, since reading this blog post, have contacted me saying that had no idea that such service fees exist. It’s in the fine print – when it should really be front and center. If I buy a product – I am shown right up front what the taxes and shipping charges are. Why doesn’t FirstGiving as prominently at “checkout” display their cut?

    And, your comment also seems to suggest that there is no competition between FirstGiving and other middle men. Right this minute, there is an alternative service (Facebook Causes) which takes a fraction of the service charges that FirstGiving does. But FirstGiving has yet to show any impetus to compete or lower it’s costs – or even lower the service fee charges to that of their UK sister site.

    This needs to be discussed, we need to be aware of this, and we as donors need to be informed where our money goes and what we are comfortable with where it goes. This is worth discussing because, as the risk of sounding hyperbolic, lives are literally on the line.

  • Jim

    Shawn-

    My objective as a “donor” is the same as yours; to ensure that every dollar raised provides its maximum benefit.

    I did not mean to convey that the total dollars passed through was irrelevant, what I tried to express is that claiming that 100% of the online donations was somewhat irrelevant given the additional money raised to support Water:Charity’s overhead.

    What I am looking for as a “donor” to ensure the maximum effect of every dollar is information and transparency to make an informed decision.

    In the case of FirstGiving, I know that the cost of Fundraising is 7.5% or $7.50 for every one hundred dollars raised.

    In the case of Water:Charity I have no idea what the cost of fundraising is, but for the sake of example let’s say it’s 20% which appears to be the average based on available statistics.
    (These might be out-dated but its what I was able to find this morning. Would love to know if anyone has any more current or different statistics.
    http://www.supportingadvancement.com/faq/cost_per_dollar_raised.htm)

    In this case the following would hold true for Water:Charity;
    Online Donation- $100
    Private Donation to support Fundraising- $20
    Dollars Raised- $120
    Cost of Fundraising- $20
    “Pass Through” of Total Dollars- $100
    Percent of Total Dollars “Passed Through”- 83%

    Using FirstGiving for Fundraising:
    Online Donations- $100
    Fundraising Fee- $7.50
    Total Dollars “Passed Through”- $92.50
    Percent of Total Dollars “Passed Through”- 92.5%

    Again what I am advocating as a “donor” is more transparency in the process. In the above example FirstGiving provides me with the information related to the cost of fundraising, whereas Water:Charity does not.

    I agree that both charities and middlemen should communicate the cost of fundraising clearly and transparently during the donation process.

    In terms of less expensive middlemen being available in the market, and from the perspective of the organization; Price is only one part of the value proposition. As stated in FirstGiving’s reply they provide an array of value-add fundraising services to non-profits, I am not sure that the lower “service-fee” middlemen offer these same services. If other middlemen offer the same or better value for less; over time non-profits will migrate away from FirstGiving to these lower cost providers.

    Again, from the perspective of both a “Donor” and an “Organization” the ultimate goal should be to drive down the cost of fundraising ensuring that every dollar raised is used to its maximum benefit.

    I am glad to have stumbled upon your blog and look forward to reading more of your posts.

    Good luck in everything you are doing.

    Jim

  • Jim

    Shawn-

    My objective as a “donor” is the same as yours; to ensure that every dollar raised provides its maximum benefit.

    I did not mean to convey that the total dollars passed through was irrelevant, what I tried to express is that claiming that 100% of the online donations was somewhat irrelevant given the additional money raised to support Water:Charity’s overhead.

    What I am looking for as a “donor” to ensure the maximum effect of every dollar is information and transparency to make an informed decision.

    In the case of FirstGiving, I know that the cost of Fundraising is 7.5% or $7.50 for every one hundred dollars raised.

    In the case of Water:Charity I have no idea what the cost of fundraising is, but for the sake of example let’s say it’s 20% which appears to be the average based on available statistics.
    (These might be out-dated but its what I was able to find this morning. Would love to know if anyone has any more current or different statistics.
    http://www.supportingadvancement.com/faq/cost_per_dollar_raised.htm)

    In this case the following would hold true for Water:Charity;
    Online Donation- $100
    Private Donation to support Fundraising- $20
    Dollars Raised- $120
    Cost of Fundraising- $20
    “Pass Through” of Total Dollars- $100
    Percent of Total Dollars “Passed Through”- 83%

    Using FirstGiving for Fundraising:
    Online Donations- $100
    Fundraising Fee- $7.50
    Total Dollars “Passed Through”- $92.50
    Percent of Total Dollars “Passed Through”- 92.5%

    Again what I am advocating as a “donor” is more transparency in the process. In the above example FirstGiving provides me with the information related to the cost of fundraising, whereas Water:Charity does not.

    I agree that both charities and middlemen should communicate the cost of fundraising clearly and transparently during the donation process.

    In terms of less expensive middlemen being available in the market, and from the perspective of the organization; Price is only one part of the value proposition. As stated in FirstGiving’s reply they provide an array of value-add fundraising services to non-profits, I am not sure that the lower “service-fee” middlemen offer these same services. If other middlemen offer the same or better value for less; over time non-profits will migrate away from FirstGiving to these lower cost providers.

    Again, from the perspective of both a “Donor” and an “Organization” the ultimate goal should be to drive down the cost of fundraising ensuring that every dollar raised is used to its maximum benefit.

    I am glad to have stumbled upon your blog and look forward to reading more of your posts.

    Good luck in everything you are doing.

    Jim

  • Jared

    But Jim, while I agree with you that it is good to maximize every dollar that comes in, your way of thinking is a little bit flawed. These private donors know that there money is going towards the organization itself, and is not actually going to help people. It is there prerogative to give money simply to pay for overhead fees. While technically that money is wasted, it does not diminish the amount of money coming from other donors, of which most would like to see their money go 100% directly to the cause.

    The difference is, everyone’s money goes directly where they want it to go. Giving, while it should be (and is) a community task, is also very much an individual task. And, most people want their individual donations to help as much as possible.

  • Jared

    But Jim, while I agree with you that it is good to maximize every dollar that comes in, your way of thinking is a little bit flawed. These private donors know that there money is going towards the organization itself, and is not actually going to help people. It is there prerogative to give money simply to pay for overhead fees. While technically that money is wasted, it does not diminish the amount of money coming from other donors, of which most would like to see their money go 100% directly to the cause.

    The difference is, everyone’s money goes directly where they want it to go. Giving, while it should be (and is) a community task, is also very much an individual task. And, most people want their individual donations to help as much as possible.

  • http://uncultured.com Shawn

    Hey Jim – great response.

    I would agree with your math if and only if charities completely gave up fundraising internally. But, whether you are donating to Save the Children or Malaria No More – they allocate a part of your donation to their fundraising efforts. So, in essence, FirstGiving’s middle man cut is a premium OVER AND ABOVE what the charity allocates to their fundraising overheads.

    And, as Jared has commented, those who donate towards overhead do so knowingly – so it is not an efficiency matter at all. It’s a transparency and choice matter. What Charity: Water does is that it allows you to choose that your money goes to water (and not their fundraising) and they preserve the integrity of your wish. Donor intent is key and any charity that respects that or tries to respect that should be given credit.

    And, I am pretty sure, given the response I’ve received that a lot of people didn’t know FirstGiving was taking such a cut and thus – in some respects – FirstGiving has failed to honor donor intent.

  • http://uncultured.com Shawn

    Hey Jim – great response.

    I would agree with your math if and only if charities completely gave up fundraising internally. But, whether you are donating to Save the Children or Malaria No More – they allocate a part of your donation to their fundraising efforts. So, in essence, FirstGiving’s middle man cut is a premium OVER AND ABOVE what the charity allocates to their fundraising overheads.

    And, as Jared has commented, those who donate towards overhead do so knowingly – so it is not an efficiency matter at all. It’s a transparency and choice matter. What Charity: Water does is that it allows you to choose that your money goes to water (and not their fundraising) and they preserve the integrity of your wish. Donor intent is key and any charity that respects that or tries to respect that should be given credit.

    And, I am pretty sure, given the response I’ve received that a lot of people didn’t know FirstGiving was taking such a cut and thus – in some respects – FirstGiving has failed to honor donor intent.

  • Owen

    Hello Shawn, sorry to have been away a while, but I’ve come back to a very interesting post.

    Liza makes a very good point about the capacity of organisations to adapt – from personal experience with a large organisation I’ve been involved with, there are a lot of competing claims on their IT departments. Small organisations can adapt very quickly – life’s much simpler when you don’t carry the burden of existing commitments and systems. For large organisations adapting in one direction can mean having to forget about something else.

    What the Govt in the UK does is refund the tax that you would have paid on the proportion of your income that the charitable donation represents. If you give direct to the charity the charity gets your donation and the full tax refund (assuming you pay tax – you have to sign or tick a box that you have taxed income, so if you don’t earn enough to pay tax the charity can’t claim).

    What that means is that the commission that JustGiving charges is still coming out of the charity’s end income stream. That doesn’t mean I’m saying that it’s unreasonable to charge, of course there are costs to fund-raising. The money has to come from somewhere. The important thing is to know how cost-effective the fund-raising overhead is.

    And not just directly. In the UK “chugging” – “charity mugging” – has got the charities using a bad name. It’s an expensive though according to some effective way of engaging with particularly young people in the street, chatting them up and getting them to commit to a long-term giving arrangement. The chuggers tend to be young themselves, often with no familiarity with the charity other than the briefing they’ve received from the middleman agency. Because they’re living off commission they can sometimes be insistent and people get pretty annoyed. That then feeds back to resistance to street campaigners – doing a stall in the vicinity of chuggers you notice people who’ve dodged the chuggers steering well clear of you as well, because they assume you’re going to harrass them for money as well.

    The cheapest way is via organised volunteers. We’ve just collected a lot of money for the Disasters Emergency Committee appeal for Haiti because we have someone indefatigable who organises site bookingn, collecting buckets and tabards, counting, etc. all out of his own time. That model often works for one-offs but it’s rather hit-and-miss for sustained fund-raising.

    Anyhow, keep up the good work and the thought provoking as well.

  • Owen

    Hello Shawn, sorry to have been away a while, but I’ve come back to a very interesting post.

    Liza makes a very good point about the capacity of organisations to adapt – from personal experience with a large organisation I’ve been involved with, there are a lot of competing claims on their IT departments. Small organisations can adapt very quickly – life’s much simpler when you don’t carry the burden of existing commitments and systems. For large organisations adapting in one direction can mean having to forget about something else.

    What the Govt in the UK does is refund the tax that you would have paid on the proportion of your income that the charitable donation represents. If you give direct to the charity the charity gets your donation and the full tax refund (assuming you pay tax – you have to sign or tick a box that you have taxed income, so if you don’t earn enough to pay tax the charity can’t claim).

    What that means is that the commission that JustGiving charges is still coming out of the charity’s end income stream. That doesn’t mean I’m saying that it’s unreasonable to charge, of course there are costs to fund-raising. The money has to come from somewhere. The important thing is to know how cost-effective the fund-raising overhead is.

    And not just directly. In the UK “chugging” – “charity mugging” – has got the charities using a bad name. It’s an expensive though according to some effective way of engaging with particularly young people in the street, chatting them up and getting them to commit to a long-term giving arrangement. The chuggers tend to be young themselves, often with no familiarity with the charity other than the briefing they’ve received from the middleman agency. Because they’re living off commission they can sometimes be insistent and people get pretty annoyed. That then feeds back to resistance to street campaigners – doing a stall in the vicinity of chuggers you notice people who’ve dodged the chuggers steering well clear of you as well, because they assume you’re going to harrass them for money as well.

    The cheapest way is via organised volunteers. We’ve just collected a lot of money for the Disasters Emergency Committee appeal for Haiti because we have someone indefatigable who organises site bookingn, collecting buckets and tabards, counting, etc. all out of his own time. That model often works for one-offs but it’s rather hit-and-miss for sustained fund-raising.

    Anyhow, keep up the good work and the thought provoking as well.

  • http://twitter.com/jon_bedford Jonathan Waddingham

    Hey there, this is a great debate and thought I’d chime in from the UK perspective as I work at JustGiving, FirstGiving’s sister company in the UK.

    Owen above states that if you give direct to a charity in the UK, then they can claim Gift Aid themselves. Yes, that’s true, but it is still a cost for charities to do that. It’s a long and complicated process and not something that can always be left to volunteers (who, otherwise, could be doing things like fundraising or campaigning instead of admin). So by outsourcing the Gift Aid to companies like JustGiving, they save having to employ someone to do that – and they get the money a lot quicker – within 20 days using JustGiving, when it can often take weeks or months internally.

    One point that hasn’t been mentioned in any of the comments is the user experience of the actual websites. Yes, some people can code a rough version of an online fundraising page – but it will be just that, rough, with a fraction of the functionality (and ease of use) of a company that focuses on that just one thing.

    At JustGiving and FirstGiving, all we do is provide online fundraising solutions for non profits, nothing else – so we obsess about the tiny details that increase conversion rates and increase donor satisfaction in our services. Unless you hire an internal web development team to do the same thing, you won’t get that.

    I also understand your point about people not realising that there are costs involved in using such a site. But Jim’s point about charity:water is exactly the same – there’s arguably less transparency about fundraising costs from charities than the suppliers. It’s often a public misconception, certainly in the UK, that people who work for charities all work for free, and that charities have no costs.

    It’s how you explain them that is important, so would be interested in your thoughts on how both of us explain that:

    http://www.firstgiving.com/statements/about_us/howitworks.asp
    http://www.justgiving.com/how-justgiving-works/
    http://www.justgiving.com/info/fees/

  • http://twitter.com/jon_bedford Jonathan Waddingham

    Hey there, this is a great debate and thought I’d chime in from the UK perspective as I work at JustGiving, FirstGiving’s sister company in the UK.

    Owen above states that if you give direct to a charity in the UK, then they can claim Gift Aid themselves. Yes, that’s true, but it is still a cost for charities to do that. It’s a long and complicated process and not something that can always be left to volunteers (who, otherwise, could be doing things like fundraising or campaigning instead of admin). So by outsourcing the Gift Aid to companies like JustGiving, they save having to employ someone to do that – and they get the money a lot quicker – within 20 days using JustGiving, when it can often take weeks or months internally.

    One point that hasn’t been mentioned in any of the comments is the user experience of the actual websites. Yes, some people can code a rough version of an online fundraising page – but it will be just that, rough, with a fraction of the functionality (and ease of use) of a company that focuses on that just one thing.

    At JustGiving and FirstGiving, all we do is provide online fundraising solutions for non profits, nothing else – so we obsess about the tiny details that increase conversion rates and increase donor satisfaction in our services. Unless you hire an internal web development team to do the same thing, you won’t get that.

    I also understand your point about people not realising that there are costs involved in using such a site. But Jim’s point about charity:water is exactly the same – there’s arguably less transparency about fundraising costs from charities than the suppliers. It’s often a public misconception, certainly in the UK, that people who work for charities all work for free, and that charities have no costs.

    It’s how you explain them that is important, so would be interested in your thoughts on how both of us explain that:

    http://www.firstgiving.com/statements/about_us/howitworks.asp
    http://www.justgiving.com/how-justgiving-works/
    http://www.justgiving.com/info/fees/