Warning: The Claim “100% of your donation goes to the cause” May (Ironically) Be Hazardous to the Greater Good

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Warning: The Claim “100% of your donation goes to the cause” May (Ironically) Be Hazardous to the Greater Good

Why Companies Can & Should Help Increase Transparency and Donor Education in their Workplace Giving, Cause Marketing and Community Investment Programs
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Summary

From the Benevity Just BeCause Blog

“100% of your donation goes to the charity.” This seems like a good thing and is certainly a commonly sought tagline, but could this seemingly positive statement be hazardous to the greater good?

This well intended claim perpetuates the myth that there are no associated costs to acquire and process donations, or at best contributes to a continued lack of transparency and donor knowledge on the topic. In this post, we’ll examine this in more detail and take a quick peek under the hood at the real costs related to giving.  Next, we’ll talk about how companies can move past the fallacy of fee-free donations to instead focus on increasing leverage and engagement in their corporate giving programs.  Ask your favorite cause if they’d rather someone pay their transaction costs or use the same amount of money to incent others to donate.  The answer will be consistently the latter!

Monday, November 7, 2011 - 10:00am

CONTENT: Blog

Author: Bryan de Lottinville

“100% of your donation goes to the charity.” It’s a statement you see often, whether in a workplace giving, cause marketing or other corporate giving context. And it’s a statement that’s made proudly, seemingly conveying transparency and efficiency, inspiring goodwill toward the organization making the claim and intended to make the donor feel good (after all, when you’ve just supported a cause you care about, of course you want your money to go right to the cause). The challenge is, when you look under the hood, it’s a statement that may do more harm than Good.   

This well intended claim perpetuates the myth that there are no associated costs to acquire and process donations, or at best contributes to a continued lack of transparency and donor knowledge on the topic. Sadly, most people and companies haven’t got a clue what an appropriate fee should be for certain aspects of fundraising and processing. So let’s take a closer look and then consider why companies should help increase true transparency and make donor education part of their corporate giving programs.
 
Benevity has a transaction fee based revenue model, which means that when a donation is made, although donors receive a tax receipt for 100% of their donation amount, there is an administrative charge to our charitable foundation partners of 5-7% before the funds are distributed to the cause(s).  The foundation pays a royalty for the use of our software platform out of this admin fee and in return, all aspects of processing the donations, including tax receipts, corporate matching, etc. are done on an aggregated, outsourced basis. 
 
Our philosophy underlying this pricing model is to make it inexpensive for companies to adopt our tools and allow their budget to be focused on matching and other incentives to increase the amounts raised for charity as opposed to spending on software. This helps both our business purpose and social mission and is the essence of Benevity’s hybrid or “B-Corporation” model.
 
Sometimes we hear clients say they have a desire to pay the fee so they can make the claim to their employees and customers that “100%of your donation goes to your chosen charity”.) Of course we love our clients (and always want more of them!) but we also feel a duty to explore and communicate best practices in our space. So with respect, although this approach is well intentioned and (unfortunately) prevalent, we think it is ultimately, umnot so great (how’s that for politically correct?). This assertion might surprise some people, but our reasons have nothing to do with defending a transaction fee model, since we’re still getting our feeRather, our reasons are aboutgreater transparency and greater leverage.

The Need for Increased Transparency Around Fundraising and Processing Costs
 
Transparency around the use of donation funds and related fees is a huge issue in need of attention in the CSR and philanthropic space. This goes for cause marketing initiatives as well as virtually all giving programs and fundraising endeavors.
 
Here’s the thing: there’s an unfortunate dearth of actual knowledge at the consumer/donor level –which extends to many companies, too–when it comes to understanding the reality of fundraising and donation processing costs. Many donors who give via giving portal or business to consumer (B2C) sites (whether run by for-profits or NPOs) have no idea how much of a dollar is actually going to their chosen causes, what the associated costs are and what reasonable fundraising, transaction and processing fees should be.  
 
Part of the reason for this is that there is frequently a lack of transparency around fees by the parties involved, which adds to an already troubling assumption that money magically gets aggregated and processed, receipts issued, donors managed and reported upon, campaigns executed, volunteers managed, etc. Although online donations are growing, they still comprise less than 5% of the total donations made annually, which in North America are about $300 billion. Can you imagine the manual processing costs that are being incurred? But imagining them is what you must do, because it is often difficult to get at the information. We expect online administration should be cheaper and more efficient, but by how much?
 
As a case in point, consider the United Way. It surprises most people to learn that when you donate a dollar to UW, say through their workplace giving campaigns, substantially less than that amount gets to the recipient agencies that the UW funds. It's different by locale (our local United Way quoted 19% as the average charge though I’ve heard it can be as low as 10% and as high as 35%) and it depends on a bunch of factors. But it sure ain't free...nor can it be. The UW has an elaborate machine that operates to fulfill their mission and select recipient charities, and it costs money to operate.  (Yes they have fees; the flip side is the value they offer: the United Way, national chapters of large charities and other charity aggregators provide valuable campaign and community impact expertise and have many corporate partners with longstanding support that ultimately do great work for their communities).  
 
Most charity aggregators have a similar model and charge a % fee on total donations, as do many B2C sites (Global Giving, which does great work, charges 15% for instance). On destination giving event sites like Movember, Run for the Cure, etc. the recipient cancer causes are likely seeing only $.50-.60 per dollar donated through those sites (but to them, the argument is that it's $.50 to $.60 more than they might otherwise see).  Even online software that is used on charity specific sites can end up costing the causes transaction fees north of 5%. And mobile giving, where do I start…? The point is, causes do incur costs and these amounts are very typically deducted from donations to finance those costs.
 
Much of this is kept from donors, not necessarily out of malice or subterfuge; but often in a well intentioned but misguided way.  Hence the frequent claim of: "100% of your donation goes to the cause". This, IMHO, is one of the most damaging things that companies can do to the landscape because taking this approach does one or more of several (bad) things:
  • It hides the actual costs that are being incurred and paid by the corporate sponsor, thereby contributing to the continued misinformation on the topic. (These costs are often hidden to the corporations as well, since they are often in the form of seconded employeesfrom the company, an indirect rather than direct cost);

  • It perverts the pricing process and drives actual fees further underground (i.e. 100% technically goes to the cause but then the cause pays fees to the other parties to receive the funds). Either way, it's not good or transparent.

  • It’s chewing up budget that could be better spent incenting participation. It often means that companies are spending rather heavily on foundation and other charitable administration and manual processes to do what technology and platform providers do as a core competency (which is part of why this sector remains so fragmented and inefficient).

Instead of focusing on removing transaction costs, think about increasing leverage and engagement!
 
So now that we’ve looked under the hood at some of they typical costs, what should companies do with this information?
The fact is, charities incur costs in processing donations, issuing tax receipts and the like. It would be nice if they weren’t all duplicating this effort (but that’s another blog topic.) Even ignoring several of the other negative consequences of this approach, paying the transaction feesmeans companies are putting their money into administration instead of leveraging their funds to incent more donations. 
 
Choosing to cover the transaction costs is akin to giving a cause a donation of that amount, which might very well exceed the amount the corporation is offering as matching funds to incent donations, which ironically may limit the overall impact. Is this the best use of their philanthropic budget? 
 
I was recently showing our workplace giving software to 16 large health causesand asked them what they’d prefer:would they rather have their transaction processing costs paid or would they prefer the same amount used by the corporation to incent more donations via matching or rewarding volunteering or some other top-line generating activity that could lead to more dollars donated? The answer was an unequivocal: give me the matching dollars!
 
It’s really just about the math. Would I want 100% of $1.00 or 95% of $1.50?

Focusing funds on incenting more people to give easily and conveniently (through matching, promotion, contests and other innovative ideas) can increase the impact from corporate giving initiatives to new levels. (Just a note about matching in particular: it’s a huge motivator for people to give. Secondary reports cite 20% as the increase in participation from matching and some of our own implementations show this can be north of 200%!). By investing in leverage and engaging people, companies can reach and involve more people in their programs. The ultimate impact is that more people give more to more causes, which benefits all parties involved. Companies connect with more customers and employees, more people feel good about giving to causes they care about, and a greater net amount overall is contributed to more causes. Add greater transparency and donor education to the mix and you have a win-win-win for companies, causes and donors.

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Keywords: Media & Communications | cause marketing | charitable transaction costs | corporate giving | transparency in charitable giving | workplace giving

CONTENT: Blog