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Donation Skimming: The New Danger to Donor Databases

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Hungry Hungry Hippos

There’s no doubt that online tools have revolutionized and democratized the way nonprofits manage peer-to-peer (P2P) campaigns, event registration and fundraising auctions. These incredibly powerful tools are available to all nonprofits at an extremely low cost. Rather than charging a fee for these services, companies instead take a cut of the payment made by the donor or supporter.

For the most part, everyone wins with this “skimming” model; the software or app provider gets paid for their services, and the nonprofit takes in revenue that normally would not have been possible to collect.

Lately, however, we’re seeing the skimming model creep into core products and services like donor databases. In addition to the payment processors charging a transaction fee, some database providers are now skimming an additional percentage off the top in addition to the subscription fee for the database itself.

This is a real problem for bottom-line revenue, because even though there is less cost up front to use the database, a nonprofit can expect to pay a lot more over the longterm.

Here’s how the math shakes out:

Provider #1

  • 3% database transaction fee
  • 2.10% payment processing fee + $.20 per transaction
  • EFT: $.20 per transaction

Provider #2

  • No database transaction fee
  • 2.10% payment processing fee + $.20 per transaction
  • EFT: $.20 per transaction

Here, you have the base price of the database ($99.99 vs $299.99 per month) plus the database provider transaction fee (3% + 0%) plus the credit card fees (the same for both providers).

At first glance, the $99.99 package looks very appealing. After all, the nonprofit only has to spend $1199.88 per year for their database vs. $3599.88 for provider #2. However, the math tells a different story.

Let’s pretend that the nonprofit takes in 1,000 individual donations totaling $100k every year.

Provider #1 will skim $3k over the course of one year. Provider #2 skims nothing.

Assuming the nonprofit uses a payment processing provider that charges 2.10% payment processing fee + $.20 per transaction, you can subtract another $2100 in credit card fees plus an additional $200 for each transaction (1000 x $0.20). That totals $2300.

So provider #1 will cost the nonprofit ($1199.88 + $2300 + $3000) $6499.88 per year, while provider #2 will cost ($3599.88 + $2300) $5899.88 per year. Suddenly, provider #2 doesn’t look so bad.

True, the nonprofit will have to pay more up front for provider #2, but they’ll net more revenue on an annual basis, without being punished for taking in more donations.

(Full disclosure: you can see Bloomerang’s payment processing vendor pricing here)

As you’re shopping around for any software, it’s important to take a close look at all of the costs associated with the program, service or app.

Are you looking to purchase a new donor database or fundraising software solution? Be sure to download our “Buyer’s Guide to Fundraising Software” before you get too far into the process!

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