Donation Processing Guide for Nonprofits
Example donation processing systems for nonprofits. L to R: CommitChange, Ejoinme, and unknown.
Overview: Collecting Donations Online
Nonprofits raise over $20 billion every year from individual donors and that number is growing rapidly as internet usage becomes ubiquitous and smartphones proliferate, even among older supporters. In the midst of this cultural upheaval, it’s critical that nonprofits have the tools and skills they need to adapt to a changing fundraising environment. This guide will cover the basics of donation processing and will help you maximize gifts.
Credit Card Processing 101
Processing credit card donations has never been easier. There are literally dozens of software solutions that will allow you to quickly collect donations on your website, but all of them will include a basic credit card processing fee. These are unavoidable costs, but they do vary somewhat depending on the company and their level of transparency.
Raw credit card processing costs are generally 1.9% + $.30 per transaction. You have to process significant volume to receive these rates ($25MM+). Most nonprofit service providers pay 2.4–2.1% + $.30 and then charge nonprofits 2.9% + $.30 to increase margins. More progressive companies pass along the bulk-rate savings to their nonprofits.
Credit card rates are generally consistent, but AMEX is always more expensive and is usually priced differently. At CommitChange we currently pay 2.4% + $.30 for most cards and 3.5% + $.30 for AMEX; we pass along all bulk-rate discounts to help nonprofits maximize their operating efficiency.
The only other cost you’re likely to run into is chargebacks. You will occasionally have a donor who either doesn’t remember making a donation or who needs to reverse the charge for personal reasons. Policies vary depending on your donation processing provider, but you will generally be liable for the chargeback plus any fees incurred (usually $15–30 each).
One-Click Versus Redirect Forms
There are two types of donation forms, those which allow supporters to give immediately and those that require the donor to load a new page, often on a third-party website. Examples and analysis:
Here’s a great example of a typical donation form. You click “donate” and it reloads a new page with a long form with many fields. The page is branded to look like the nonprofit’s actual website, but the experience is both generic, dull, and slows down the donation.
By contrast, newer donation forms allow supporters to give in one click from anywhere on your website and allow you to build the giving experience into your most compelling content. We’ve achieved 110–175% higher conversion rates with this streamlined process.
But why does one process work better than the other? We’re still gathering data, but my hypothesis is that the secret to increasing donations is simple: reduce the distance between supporters and donations. Make the giving experience immediately accessible, painless, and very fast.
How Important is Mobile?
We are past the tipping point. Mobile devices now account for more internet traffic than desktops, which has huge implications for your online fundraising strategies. It means you need to take mobile optimization very seriously in both your fundraising strategies and tech requirements, or risk losing the majority of potential supporters.
Fortunately, it’s also getting easier to optimize your giving experience for mobile users! When reviewing donation processing services make sure you confirm and test mobile compatibility for smartphones, tablets, and smaller laptops. One-click donation forms are automatically mobile optimized, but older static forms may require manual upgrades.
This graph demonstrates how mobile internet usage changes throughout the day.
Optimizing entire websites can be trickier, but I recommend taking a look Squarespaceat and Weebly if you’re a smaller nonprofit or have budgetary constraints. They’re both excellent services and work out of the box.
“Platform Fees” and Hidden Costs
Unfortunately, business models and costs can vary wildly. The most controversial costs are “platform fees” which is when your donation processor skims a percentage of donations for profit. These percentages are usually lower for simple processing forms (1–2%) and higher for crowdfunding and event ticketing (3–5%). These percentages are usually in addition to your credit card processing costs.
Here’s a list of service providers and their total percentage fees:
- Note: percentages include credit card cost plus any donation skimming.
Now let’s say you raise $100,000 online this year. Here’s the cost:
As you can see, percentage skimming starts to add up quickly if you raise any significant amount of money online. The numbers can be shocking for organizations who raise over $500,000 online or who have an unexpectedly successful crowdfunding campaign.
Operating Efficiency Argument: this is the real problem with donation skimming. For better or worse, nonprofits expected to maintain high operating and fundraising effiency (usually below 15% of total revenue). This can be very challenging when your fundraising platform automatically takes 5% of every dollar you raise online. Percentage-based fees significantly lower your fundraising efficiency and can make it harder to raise money from major donors and foundations.
Other Important Core Features
Donor Receipts: Make sure it’s easy to customize your donation receipt emails and that they look professional. You should be able to add custom text, your logo, and any relevant tax information.
Custom Forms: You should be able to quickly create new customized donation forms on your own when you have a special event or giving opportunity. Being able to deploy custom forms quickly will also allow you to experiment and improve strategies more easily.
By prominently highlighting the option, we increased recurring gifts from 2–3% to 12% of our total donations.
Recurring Gifts: These are the holy grail of donations and you want to maximize them. Recurring donors give ~40% more and it’s always easier to steward existing donors than find new ones.
Clear Analytics and Reporting: Strong analytics are critical if you’re going to take online fundraising seriously. To raise significant money, you’ll need to know what works, what doesn’t work, and why. Your performance data needs to be easy to view, understand, and export into reports.
Easy Setup and Maintenance: This is important. Find a system that you can easily implement and maintain without technical assistance. This will save you money and headaches.
Full Integration: Don’t get caught manually consolidating data between systems that don’t communicate! If a system requires manual data entry and consolidation, it’s going to consume hundreds of hours of staff time, which ends up making the solution very expensive. Only use systems that integrate with each other or have easy data consolidation features.
Customer Service: Find a company who you like working with and whose internal company culture is fanatical about supporting nonprofits. You should expect timely responses (48 hours or less), regular access to an account manager, and frequent updates and improvements. Make sure that phone support is included in your plan.
There’s no universally correct donation processing service, but hopefully this guide will give you enough of an overview to understand all of the most important moving parts and differences. If you have follow up questions, feel free to reach me directly on Twitter at @SiliconRoderick. I also recommend checking out Grassroots.org if you’re a smaller nonprofit.