The NonProfit Times - The Leading Business Publication For Nonprofit Management

By Tim O'Reiley
Despite the piles of studies and consultants' programs designed to bolster the effectiveness of fundraising, Devon Batley has boiled her strategy down to two words: go online.

"I hope some day nobody sends us a check (by mail)," said Batley, the membership coordinator for the Oregon Natural Desert Association in Bend, Ore. "It would be ideal if we could move everything to online donations. Definitely people are becoming more comfortable with it."

On the face of it, the association fits a profile that would suggest they stick to paper. Last year, Web payments brought in about $20,000 in 287 transactions, 13 percent of the revenue generated by events, merchandise and membership sales to patrons interested in protecting the desert environment of eastern Oregon. The array of charges that come with taking donations online has proven to daunting to some organizations of that relatively small size.

"To us, it is worth it," she said. "Even with the fees and everything, it is so much more efficient than paper."

The tide of technology would seem to back her up. In just two years, the money donated online increased 162 percent to $6.9 billion in 2006, according to the latest estimate from the ePhilanthropy Foundation. Although that amounted to only 2.3 percent of the total giving that year of $295 billion recorded by the Giving USA Foundation, online activity has produced spikes during major disasters and at year's end.

"The Internet has changed forever so many dynamics in our culture, and it is changing the way contributions are coming in, too," said Eric J. Hall, president and CEO of the Alzheimer's Foundation of America in New York City. The foundation now takes in about half of its donations online, up from about one-fourth just four or five years ago. The organization declined to discuss raw numbers.

Indeed, a "donate now" button has become standard equipment on large charity Web sites. "There is a point where perception becomes reality," said Daniel Ben-Horin, president and co-CEO of TechSoup, a nonprofit technology assistance provider in San Francisco. "If you are not perceived as current, it is not good for the organization. For that reason, nonprofits will some day have to have some (online payment) functionality."

But many small or mid-sized organizations still have not installed donation buttons, although hard numbers are not available. Even among many large groups, the percent of donations coming in through the Web is still in single digits.

That causes experts in the field to warn nonprofits to think carefully before jumping into online fundraising. "Online donations will likely make sense for many folks," said Laura S. Quinn, the president of Alder Consulting in Portland, Maine. "But the ability to accept credit cards doesn't suddenly create donors out of thin air. A button is not a strategy."

Wisconsin Public Television, which raises about $350,000 of its $4.5 million in annual donations online, is a true believer but still raises caution flags. "For small nonprofits without the ability to reach people, I think it's a real dangerous area to dump a lot (of resources) into," said Development Director Jon Miskowski. "Unless you have a way to drive people to your Web site, it's a lot of money to no effect. Even if they come, it doesn't mean they will give."

While some payment processing systems are cheap enough to make it worthwhile for almost anyone to add a donation button, Ben-Horin added, nonprofits should expect to get what they pay for. "It is kind of a seductive idea out there that if you have the right widgets on your site, then this stream of money will come flowing in," he said. "It doesn't work that way."

The amount of its own money and number of staff that a nonprofit will commit, for such cornerstones as tying the donation page to other parts of the Web and building clean lists of email addresses, is the first and perhaps most critical hurdle to clear before deciding whether to set up a donation capability.

"For organizations that are not going to invest in an actual online strategy, but just accept donations at random, it is probably not worth it," said Holly Ross, executive director of the NTEN consulting and research service in Portland, Ore.

The Nature Conservancy, based in Arlington, Va., first accepted online donations in 1996 and beefed up its capability four years later. Yet annual Web donations only inched toward the $2 million mark until the organization formed a digital team two years ago, said Sue Citro, the senior digital membership manager. Last year, online donations jumped 60 percent compared to 2006 to $4.2 million, or 7 percent of the Nature Conservancy's total annual giving.

With all the fees that come with online donation processing, which can include a sometimes bewildering combination setup and monthly charges, flat or percentage transaction charges, card processing fees and fees tied to a merchant bank, "It can get pretty pricey," she said.

Wave Hill, a 28-acre park and garden in the Bronx section of New York City, allows people to purchase memberships online only because it was an add-on to its gift shop sales system, said Development Director Kathryn Heintz. But with an overwhelming number of individual donations coming from patrons who visit the park, she estimates that fees would eat up as much as half of any online donations if the organization added that capability.

"It's a double-edged sword," she said. "You want to provide the service. More and more people are doing things in the middle of the night, when they have time at the computer. But with the fees, online donations just don't make sense for us."

Perhaps costlier to other organizations is the amount of staff time that must be allocated to online donations if they are actively promoted. For example, it took two CompuMentor specialists working full time for close to three weeks to just compile a still-unpublished buyer's guide, a process that involved sifting through the widely divergent pricing plans of 42 vendors.

As a result, experts say, nonprofits must carefully analyze their donor bases, taking into account factors such as numbers of donations, average size, the ages of supporters, their geographic spread, the immediacy of need and the nature of the appeal -- cerebral or emotional. For instance, surveys and anecdotal evidence point to younger people as being more willing than those older than 50 to give online, a major factor for a nonprofit that might need to renew its donor base.

Immediacy and emotion combined have proven to be a powerful draw, particularly in wake of disasters. At Atlanta-based CARE, for example, online donations soared to $13.5 million in 2005, with the large majority coming in the immediate aftermath of the Asian tsunami. During fiscal 2007 ended June 30, by contrast, online contributions had fallen to $4.3 million of the $117 million the flowed from private sources. Vice President of Marketing and Communications Adam Hicks said, however, that online giving has risen about 50 percent annually in recent years when extraordinary events are excluded.

Other groups got the message. "For us, the tsunami was a wakeup call," said Carolyn O'Brien, senior vice president of the medical relief agency AmeriCares in Stamford, Conn. "Until then, the Web was not used purposely as a fundraising tool."

Last year, about $1 million of the $20 million in cash contributions -- the large majority of its total budget comes as in-kind donations Ð was generated from the Web, about 80 percent of it from people who previously mailed in checks. O'Brien said AmeriCares is now experimenting with different ways to ramp up the total. "At a minimum, you want people to think of you during the next disaster," she said."

Due to the immediacy factor alone, Wisconsin Public Television has seen year-end giving grow "from a bump to a spike," said Miskowski.

For those willing to take the plunge, dozens of vendors have sales pitches warmed up and ready to put in gear. Some, notably Blackbaud, Kintera and Convio, sell online donation capability only as part of a larger donor management software package and not separately. Others list different features and widely divergent price lists.

With dozens of vendors in the field, competition has sharpened. Google, for example, offers its Checkout system free for nonprofits through the end of this year. PayPal, a division of eBay, made donations to organizations under certain conditions.

"Negotiate the terms, especially as your volume grows," said Hall of the Alzheimer's Foundation.

Quinn cited a list of factors to consuder in her widely quoted Donate Now buying guide written in October 2005 for Idealware, including:

Merchant bank fees. Although a somewhat esoteric detail, Quinn said this makes a good starting point for comparison shopping because some vendors require you to use their accounts while others require you to open your own. Some go both ways.

Vendors handle the paperwork and customer service questions for their own accounts, and could be cheaper for smaller organizations. With in-house accounts, organizations receive their money within five days rather than in batch payments once or twice a month, capturing that extra interest income due to the shorter float. The nonprofit's name also goes on the donor's credit card statement.

Either way, there will be flat or percentage transaction fees.
Start up charges. These can range from nothing to tens of thousands of dollars for some of the full donor management software package providers. As a related issue, some systems are do-it-yourself simple, some require outside help.
Monthly fees. These usually run less than $100.
Transaction fees. These are calculated either as a percentage of each donation amount, or a flat fee per transaction or both. This is where it becomes especially important to understand donation patterns, because the best vendor for a few donations at high dollar amounts might be the worst for a lot of small donations.
Reliability. Although hard to measure objectively, it is widely recommended that nonprofits ask for a vendor's financial results and client list. Next, independently check at least the client list. Experts suggest requiring daily updates of contribution lists so that the nonprofit does not lose valuable information in the event the vendor shuts down or drops the business suddenly.

Five years ago, nonprofits were initially out $17.7 million when the San Francisco payment processor PipeVine collapsed. Although the losses were largely eliminated later, experts say this situation would not likely recur because it controlled the funds more than vendors in the market today.
Personality. Most vendors will design a payment page to look like it is a part of the organization's Web site, even if the vendor is hosting it on its own servers. Development officials strongly endorse this feature, rather than dumping a donor on a different looking page to fill in the credit card information.
Security. Everybody offers it, yet fundraisers say this is still the largest concern donors have about giving online. "This is not an area you should skimp on," said Hall of the Alzheimer's Foundation.

Once the online capability is put in place, the experience has varied among those drawing new donors compared to moving donors from paper to the Web. Further, said Hicks of CARE, "There is a phenomenon in the nonprofit world not talked about much of people making their first gift online, then subsequent gifts by check."

For that reason, he said CARE has pursued a strategy of making the online option available as one of several donation avenues, rather than trying to herd donors in that direction. NPT