January 7, 2022
All software is created the same way – by bringing talented people together to build something that creates value and fills a need. While it may start as a labor of love, it needs to be funded for longevity and continued usefulness. The fundraising software that nonprofits use is no different. Although often discounted for nonprofits, high-performing online fundraising software fees are necessary to develop and maintain the security and performance of fundraising platforms used to attract and retain donors and ensure their loyalty and continuous financing.
So, what types of fees can nonprofits expect to pay for online fundraising software? This article will explore the costs associated with running a software company and discuss the six most common types of software fees that nonprofits can expect to encounter.
Costs associated with running a software company
Most software companies’ operating costs can be broken down into:
Infrastructure and maintenance:
This includes the computers, database, backups, redundancies, and support of software applications. Working with top-tier companies like Amazon (AWS) or Microsoft (Azure) is key to reliable infrastructure.
Software development:
Many factors determine the cost of building fundraising software for nonprofits. Hourly rates of developers, the features and complexity of the software, and quality assurance all play a part.
Support:
Online fundraising software is only as good as its ability to make your efforts easier and the team that will offer you support in doing so. This is a differentiator among companies. Trusted and reliable software companies invest heavily in responsive and timely support resources. This includes a support team that troubleshoots issues quickly and offers actionable steps, articles, tutorials, and walkthrough videos that will help you strategize and leverage the fundraising platform to its full potential.
Sales, marketing, and management:
The success of online fundraising software is often reliant on the strength and reach of its marketing engine responsible for all the activities that go into acquiring, retaining, and growing customers. The best software companies balance these roles to keep costs down and pass on the savings to their customers.
How Do Software Companies Make Money?
Software companies need to cover their costs and turn a profit to make money. This is done by charging customers for using their products and services and can be done through various methods.
Investment Capital – Market Share Strategy
The key to this strategy lies in acquiring as much market share as possible by offering deep discounts and generous terms for early adopters of the software. This means the company is willing to give away software and services to secure customers. An investment company will make a large investment to build the product and get it in front of people. Often called ‘burn rate’, the company won’t make any profit for a period of time (sometimes even years). The goal is to sell the company to a larger investment firm that will restructure and set up a pricing model. Undoubtedly, this will ‘churn’ (lose) customers, but the objective is to keep enough to turn a profit. This model will often sacrifice support and feature development to keep costs down while acquiring customers.
Freemium – Offer enough for free and upsell features
Under this model, a software company offers a limited amount of features that can provide a basic use of the software. However, once a nonprofit is set up, they will quickly see that other helpful features are available at an additional cost. The goal is to get users on the platform but leave the best and most useful features out of reach until a payment plan is selected.
Platform fees – paying for success
This is an approach where online fundraising companies charge fees based on the amount of money funneled through their software. The cost model becomes more expensive when your nonprofit starts to grow and you raise more money. It can be confusing to determine the final fees you pay because platform fees can be made to look like total fees but do not include things like credit card payment fees or per-transaction fees. Nonprofits subjected to this model can feel “punished” because their cost of using the platform is increased as they become more successful at fundraising without benefitting from more valuable features.
Tips – passing the fees to the nonprofit’s donor
This is a more recent online fundraising software fee model where the company will advertise a 100% free system. However, to stay sustainably operational, it will ask a nonprofit’s users (donors) to pay a “tip” for using the software. This, in effect, passes the online fundraising software costs to those who make donations instead of the nonprofit. This structure does not provide a bottom-line cost for service and can also incur fees if the donors do not cover enough of the software cost with “tips.” Credit card processing fees are also in addition to “tips.”
Custom fees/Multi-year agreement
This online fundraising software fee model is on the higher end of pricing. Many companies have moved to a more complex approach balancing long-term costs with startup fees, support costs, and platform development expenses. The idea is to get nonprofits signed up for longer periods to better predict their online fundraising budget over time rather than paying out large chunks of cash at once. The challenge for nonprofits is that most aren’t interested in multi-year contracts and would rather pay a lower price for software that doesn’t have hidden fees.
Flat fee/Monthly fee with annual discount
This final fee structure is the most basic of all fee types. The software is bundled with the features needed to succeed, and transparent pricing is available on the marketing website. To allow a customer to save on costs, the software company may offer an annual subscription with a discount. This is the online fundraising software fee method that ClickBid uses. Speaking frankly, we have tried some of the other methods over the past 20 years and have decided to stick with this structure as it provides the most transparency to the organization. In addition, it also ensures that we can retain top-tier talent and technology for nonprofits.
Conclusion
There are a variety of online fundraising software fee structures that your nonprofit should be aware of. It is important to do your research and understand the different fee models to make the best decision for your organization. At ClickBid, we believe in offering a flat fee with no hidden costs so that our nonprofit partners can focus on their mission of acquiring donors and raising funds for their causes.
