January 6, 2025
Nothing is free, so why is it so hard to find the bottom line?
In my 24-year journey through the labyrinth of fundraising, I've witnessed the evolution of countless tools and technologies promising to revolutionize the nonprofit sector. Yet, there's one crucial truth that remains unchanged: no software company operates entirely for free. I hear my father’s voice whenever I read this. My dad worked in a machine shop for over 40 years - completely unrelated to software or fundraising. This expression therefore is not just an industry nuance; it's a foundational aspect of all walks of life. The nuance is that most people don’t know the costs of running a software company. Let’s dive in!
The cost of the cloud industry
At the core of every transaction, whether you're buying a cup of coffee or raising funds for a noble cause, there are unavoidable costs. Credit card companies like Visa, Discover, MasterCard, and American Express always take a percentage of each transaction. This is an accepted norm, a silent partner in every exchange. Beyond these fees, software companies must invest in secure transaction processing, whether through third-party services or their own costly infrastructure.
Further, the code that is written, the security checks, the databases that hold your event data lives on the servers managed by giants like Amazon, Google, or Microsoft—in the form of hosting fees. Every click, every keystroke, is supported by a backbone of technology that incurs costs. The architects of this digital world—the developers, customer support teams, and consultants—deserve compensation for their expertise and time.
Assessing fees associated with running a software business
Understanding these layers of cost is critical, especially in an era where the word "free" is brandished as a marketing tool, often missing its true meaning. Here’s what I mean. When a software company claims their service is “free”, it often means that there is no upfront charge. As a nonprofit, you can create an account, set it up, promote it, and start using the platform without providing any upfront payment. At this point, however, the “free” is over.
Your actual costs emerge on the backend. For every dollar your campaign raises, the software company takes a percentage—a fee that can be significantly higher than a straightforward licensing fee. This model shifts the risk to the software provider, banking on the success of a few large campaigns to offset the less successful ones. It's a calculated gamble, one that can be lucrative for the company but less so for nonprofits.
Consider this: whether your campaign raises $1,000 or $100,000, the service provided remains constant. Yet, the software company profits exponentially more from the larger campaign without offering additional value. This disparity highlights the need for transparency and awareness among fundraisers.
From my 23 years of experience, finding and retaining donors is a Herculean task. Donors are often already committed to other causes when you reach out to them, and persuading them to support yours requires building genuine relationships. Fees that are passed to donors via “tips” or “help us cover our fees” options can slam the breaks on building lasting relationships.
Nothing to see here
This is why a transparent, upfront fee structure can be a game-changer. By paying a clear, predictable fee at the outset, nonprofits can maximize the funds they receive from donors. This approach mirrors traditional vendor relationships—like hiring a caterer or renting a venue—where costs are known and accounted for upfront, ensuring that donors' contributions are directed entirely toward the cause.
In conclusion, while there are no free rides in the realm of fundraising, understanding the true cost of "free" can empower nonprofits to make more informed decisions. By prioritizing transparency and aligning with partners who share this value, we can ensure that our efforts are not only successful but also genuinely beneficial to the causes we champion.
Explained for a 5th Grader
Imagine you want to play with a toy, but you need to borrow it from a friend. Most of the time, you have to give something in return, like a cookie or a sticker. That's because your friend spent time and effort to get the toy, and they need something back for sharing it with you.
In the grown-up world, there are companies that make special computer programs to help people raise money for things they care about, like helping animals or building schools. These companies need money to keep working, just like your friend needs a cookie or a sticker. They have to pay for things like computers, people to help fix problems, and other things that make the program work.
Sometimes, these companies say you can use their program for "free." But what they mean is you don't pay right away. Instead, when you raise money using their program, they take a little bit of that money as their payment. It's like if you borrowed the toy and promised to give your friend a part of any cookies you make while playing with it.
Some companies charge you upfront, just like paying before you play. This can be better because you know exactly how much you're paying, and you don't have to give away part of your cookies later.
So, even though it might seem "free" at first, there's always a cost somewhere. It's important to understand this, so you know what you're agreeing to, just like knowing how much cookie you need to give when borrowing a toy.
