Crowdfunding alternatives that actually make sense.
Blog May 5, 2014 By Kevin Wolfe
As the word crowdfunding becomes more and more a part of our vocabulary, nonprofits are questioning its use as part of their revenue stream. It seems like crowdfunding is money for nothing: a site just hands you the cash they raise for you, right? While you'd expect saying yes is a no brainer, crowdfunding is not without its downsides, as many established nonprofits are discovering.
When crowdfunding is a plus.
For smaller and newer nonprofits, crowdfunding can generate revenue you might not otherwise. If your cause is added as an option to a crowdfunding site, it can bring you free exposure as well as some donations. If a donor visiting the site is looking for a cause similar in mission to yours, it can mean they're exposed to your organization's name and possibly a brief description of what you do. For smaller organizations that don't have their own fundraising software or an established fundraising structure, crowdfunding can be an introduction to very basic online fundraising and net a few dollars for your cause.
When crowdfunding is a minus.
Larger, established nonprofits are dabbling in crowdfunding, seeing it as a possibility for a new revenue stream while it's trendy. But a recent article in the New York Times has set off some alarm bells about crowdfunding for established nonprofits. Here's what larger nonprofits stands to lose if they pursue crowdfunding:
- You can lose the relationship With crowdfunding you may get donations, but you may not get much (if any) information about who gave to you. The relationship is usually nonexistent and there may be no way to start one.
- You can lose control You have little or no control over your branding, messaging or even the giving process on crowdfunding sites.
- You can lose dollars Crowdfunding sites can take up to 30% of the money donated. The reality is that you could be paying almost a third of the donations and still wind up with anonymous donors or fundraisers.
The importance of the relationship.
Ed Lord is the former Senior Vice President of Business Development for the South Atlantic Division of the American Cancer Society and now Vice President of Strategic Services at DonorDrive. He spent 25 years working on better ways to build the connection with his supporters:
"The key to an organization having long-term fundraising success is building long-term relationships with its supporters."
He sees that crowdfunding leaves a huge disconnect between supporters and the nonprofit:
"The problem with crowdfunding is you never get the chance to build a long-term relationship because you usually don't get good information about them. Without this you don't have an opportunity to truly connect with them. You can't inform them about your mission, goals and successes."
Giving an unfamiliar party control over your fundraising creates other loss of control nuances that might not be obvious at first. Consultant Mike Malekoff, a former Vice President at JDRF, gives an example of one of these problems: "You run into behind-the-scenes accounting challenges. Example: A donor goes to a crowdfunding site, selects your organization, makes a $100 donation and then calls you at tax time saying 'Hey I made a $100 donation and I didn't get a receipt. Could you issue me one?' Your organization can't provide a receipt for a donation you don't have in your system. And the crowdfunding site may not provide you with donor information or amount. So you alienate a potential long-term donor. If that donor has a bad experience, they're gone."
"People might feel a more direct connection in crowdfunding, but it doesn’t mean it’s doing the most good.”
Katherina M. Rosqueta
Center for High Impact Philanthropy at the University of Pennsylvania
quoted in the New York Times
The company you keep with crowdfunding.
Crowdfunding can also be looked at as crowded-funding. Everybody's getting in on the act and they're not exclusively "causes" you'd want to be lumped in with. Andre Shakti, a sex worker from San Francisco, put up a campaign on a crowd-funding site promoted for nonprofits to raise money to go to the Feminist Porn Awards in Toronto. The campaign ran completely in accordance with the crowdfunding site's terms of service and reached goal. With crowdfunding, a nonprofit can be raising funds to combat something that others on the site are raising money to promote.
Part of your revenue stream?
There's a pied-piper-like lure to crowdfunding's "free" money. It has some nonprofits promoting crowdfunding on their site and directing their established donors to these vehicles to donate. Mike Malekoff is wary: "It would be insane to redirect potential donors from your site to a crowdfunding site where you lose complete control." On your site, you have a supporter's complete attention. If they're directed to a crowdfunding site to donate, they can be tempted with a smorgasbord of donation options. If your donor sees a cause that's impulsively more appealing than yours, you could be steering your donors to give to another organization.
The changing fundscape.
Large nonprofits are also concerned for another reason: crowdfunding as a trend could be changing the way all donors give. Many major nonprofits with well-established missions and long track records of success are reporting that their donations are flat. There's no proof that crowdfunding is the cause yet, but the New York Times post notes that last year $1.6 billion was given through crowdfunding sites in the US alone. With all the crowdfunding websites du jour available, the very nature of being a well-established charity can put you at risk. In crowdfunding, giving to a service organization that has effectively supplied millions of meals to starving people in underdeveloped communities for decades may not have the personal appeal of giving to build one well for a family in Central America.
“A very simplistic project can be great, but if it becomes the sole means people give, we’re going to end up addressing a much narrower set of social problems.”
President of Charity Navigator
quoted in the New York Times
How to appeal to the crowdfunding crowd.
While crowdfunding can be viewed as a danger for the major nonprofit, it doesn't have to be. By using your organization’s peer-to-peer fundraising software to appeal to donors who crowdfund, you can increase your revenue stream and turn these one-time givers into committed donors. Here are steps you can take that will redirect the donation path back to your organization and create new fundraising opportunities that you have complete control over:
- Take back control of your donations
- Grow fundraising with your own third party fundraising program, on your platform
- Make your capital campaign into a series of micro capital campaigns
1) Take back control of your donations.
Evaluate to make sure you're not steering your donors away. While it seems like good business to try to explore every revenue stream that you can, you could be eroding your proven, signature programs. Evaluate each revenue source to determine which are helping your cause and which could be hurting. Ask:
How much is the source generating? The promises may be way bigger than the dollars you're actually seeing.
How much time are you investing? Often smaller sources can require much time but generate little.
How much is the source charging? Sometimes the percentage is way higher than you would find acceptable compared to your organization’s fundraising software.
How much control do I have? Evaluate control over branding, messaging, audience, dollars, fundraising methods, convenience for your supporters, etc. The less you have a hand in, the less you control over your supporters fundraising experience you have.
If you assess and find a hodgepodge of sources are making up your revenue stream, it may be time to take a hard look at how you're funded. If you're not using the donation vehicles you use for all your major fundraising, it’s time to switch to software that you have complete control of. We always think it's a shame to turn down a dollar, but if you find smaller streams are just trickling, it may be time to turn them off. Your staff resources would be better applied to developing new branded programs that you have control of that seriously boost your revenue.
2) Grow fundraising with your own third party program.
Most medium and large nonprofits have set up their own third party programs. The key difference in third party programs and crowdfunding is that third party programs present your donors with opportunities to give and fundraise for your organization exclusively, which draws them closer to your cause. Crowdfunding gives them the opportunity to discover other causes, possibly drawing them away. Mike saw a genuine opportunity and created one of the most successful third party programs by a major nonprofit that has raised millions through DonorDrive.
"For established nonprofits, third party events can be a major boost to the revenue stream by giving your supporters the creativity to fundraise for you."
Third party programs consist of three event types to meet the fundraising creativity of different donors: Challenge Events, Community Events and Personal Campaigns. These are covered in more detail in the first post in our series on creating a third party program.
3) Break your capital campaign up into smaller campaigns.
A draw of crowdfunding is that goals are generally smaller and more targeted on accomplishing somethingclearly tangible. Ed sees that medium and large nonprofits have the opportunity to harness crowdfunding style fundraisers themselves, guide them and drive better fundraising through their own software: "Rather than one big capital campaign, organizations can create a third party site that breaks the campaign up into smaller projects that their supporters can direct donations to." The more specific the project the better. Ed recommends that you make these appealing by stating what a dollar buys: "Show exactly how those dollars will be allocated. When you put a real face and a map pin on a project, today's supporter is more likely to donate." This approach can give your nonprofit a crowdfunding-like appeal while completely controlling the branding, message, web traffic and donations.
Paws With a Cause® takes the crowdfunding model to the next level with Personal Campaigns.
PAWS helps those in need get specially-trained assistance dogs. With a long waiting list of clients, they were looking for a way to empower people to do their own fundraising and get their dogs faster. Using DonorDrive Social Fundraising software, they helped Heidi Brassil set up a Personal Campaign to get an assistance dog for her son Noah, who has both Epilepsy and Cerebral Palsy. Heidi promoted Noah's fundraising page to her large network of Facebook friends. Within 19 hours, she had raised the $10,000 to get Noah a dog and went on to raise $2,500 over. Heidi asked that the overage be used toward an assistance dog for someone else.
PAWS created these Personal Campaigns to get a dog in DonorDrive as part of their regular fundraising effort. Joe Dulin, Paws Director of Advancement looked beyond crowdfunding for this program: "As we redesigned the website for PAWS we wanted to look at a peer-to-peer fundraising platform, because I really felt that that was a strategy that could be successful for us given the nature of relationships with our donors from all across the country." Personal Campaigns in DonorDrive provides an experience similar to crowdfunding for clients and donors, while the organization maintains total control.
5 ways to make your campaigns friendly to crowdfunders.
Look at crowdfunders (those who find giving to crowdfunding sites appealing) as a new type of donor that you should be going after. Here's how you can make your campaigns more appealing to them:
- Make the goal easy Much of the success of crowdfunding stems from the fact that a handful of donors can make it happen. A million dollar goal seems unattainable to these people. A $1,000 goal that already has $750 donated makes the donor feel they can have impact and can help the goal be reached quickly.
- State exactly what the campaign provides A dialysis machine, an assistance dog, vaccinations for a village: These are tangible things that can be pictured and easily grasped. Money that goes into a fund isn't specific enough for the crowdfunding mindset.
- Put a face to the campaign Supplying books for an entire school in Africa and telling the story through the eyes of one little boy shows how a donation will improve the life of a specific person as well as his village. Photos and video make it even more personal.
- Give supporters the tools to create their own campaigns Donors today want to directly touch your fundraising. They were attracted to crowdfunding because it gives them more control over how their dollars are spent. But you can let them dive even deeper through personal fundraising. Where crowdfunding gives the donor a choice of who to donate to, a tool like DonorDrive's Personal Campaigns gives donors to your cause the power to create their own campaigns on your behalf. So if they're climbing a mountain, they can turn it into a fundraiser, promote it to their friends and your cause gets all the benefits.
- Encourage sharing the campaign over social media As with crowdfunding, someone needs to let the crowd know in order for them to fund. Put up social sharing buttons on all your donation pages to make it easy.
Finding a controllable revenue stream.
Mike notices that some donors are just seeing crowdfunding as the shiny new thing and not looking to how it affects all nonprofits:
"When something looks too good to be true, you probably need to take some time looking into it and better understand what the implications are when you get involved. You can spend a lot of work setting these type of things up and not generate any real revenue."
While crowdfunding may seem to some to be the new way to fundraise, it's longevity beyond the fad state remains to be seen. Both Ed and Mike have watched many new ways to fundraise come and go, most ultimately not panning out as expected.
We also have to question why there are so many crowdfunding sites popping up. Were they born of a passion to do good or were they created to take advantage of a market opportunity? Many crowdfunding sites are funded by venture capital, which can signal that there was a market opportunity that investors saw as profitable for themselves (at least in the short term) or they wouldn't have taken the risk.
"(With crowdfunding) there is the risk of being beholden to the whim of popularity.”
Director of Digital Marketing and Social Media for Save the Children
quoted in the New York Times
Mike has seen risky fundraising models come and go. He remains wary: "Crowdfunding has grown very fast because it's a novelty and seems like a new revenue stream, but in the long run—can you really afford to give up that much control of your donors for a few dollars?"
Chief Strategy Officer at DonorDrive
Ed comes to DonorDrive from a 25-year career in fundraising for the American Cancer Society that helped generate over one billion dollars for the organization. His last role at ACS was Senior Vice President of Business Development for the South Atlantic Division. He was instrumental in the development of Relay For Life and a pioneer in peer-to-peer fundraising.
Before starting his consultancy firm, Mike was a Vice President with JDRF. While there he oversaw various event programs including the JDRF Walk to Cure Diabetes, the Ride to Cure Diabetes, as well as Team JDRF, one of the first third party fundraising programs in the country; helping to generate millions for the organization. He has extensive experience in organizing both non-profit and commercial events.