Fundraising platforms advertising absolutely no fees have become quite popular over the last number of years, but this model, in our opinion, has some serious implications that aren’t readily apparent, at first glance. After all, never having to pay any fees sounds great, doesn’t it?
There’s no such thing as a free lunch though, and these companies (some of whom have raised millions of dollars) are earning their profit via an optional tip of 10-15% that is presented to the donor (often pre-selected, requiring the user to opt-out of the tip), that goes directly to the platform. That means the absolute best-case scenario is that these vendors are capturing money from your donors that could be going to you.
The implications of this model are much more concerning. Let’s take a look at some of the biggest concerns:
You’re travelling in two different directions
Sustainable business practices require alignment between the vendor and the client; what’s good for you as the customer must also be good for the software provider, otherwise they are incentivized to actively work against your interests.
This “donor-tipping” model results in extreme incentive for the software vendor to optimize for tips above anything else, as this is how they make money. It’s already common for deceptive user experience patterns like pre-selecting the tip or using language that makes the donor feel guilty for not tipping to be used to elicit tips from the donors.
Additionally, it’s not uncommon for donors to not even realize there is a tip added to their donation, which either results in a complaint to your organization, or worse a silent but frustrated donor who doesn’t give again. Leading us to the next problem…
Relationships, not transactions
Your organization's success and future largely depend on the relationships you build with donors, vs. any one gift and a donor experience that leaves a bad taste in a first-time donor’s mouth is likely to cost you way more than the processing fee you are “saving” by using a platform that is funded by donor tips. If the donor doesn’t notice the tip, or they don’t realize that a tip with a recurring donation is going to also recur with that donation, unexpected frustrations are being added into the mix that can and often do leave a bad impression with a donor.
You may be able to speak with a frustrated donor, and explain the extra steps they need to take to avoid these tips. Most donors, however, don’t complain about a negative experience; a donor is very likely to feel that calling a charity to request a $7.50 tip to be refunded is petty, so they’re likely to just let it slide and view the experience as negative.
The Startup Playbook
It’s no secret that we aren’t keen on venture-funded technology in the non-profit sector. The playbook for Startups is clear, established and has many real-world examples. Venture-backed tech only cares about growth, forever without end, even if it damages the company. Unbelievable quarter after quarter growth is lauded as a great success by analysts and media instead of recognizing it for what it is: cancer.
The starting point for donor-tip based platforms is already not great for an organization, but rest assured their investors were pitched on how they are going to tweak the levers of profit once the user base gets big enough. This is how it always works, because a successful business that makes a decent profit is viewed as a failure. There must always be more growth, and eventually profit, no matter the cost.
We live under capitalism. It’s impossible for every choice to be ethical, but we do have the power to choose a path to reduce harm where possible.
