Crowdfunding is everywhere, raising funds for individuals and businesses all over the world. Not all of these campaigns are wildly successful, and championing one goes back to the old adage of “you get out what you put in.” Nonprofits and governmental entities have a challenge to determine if crowdfunding is right for their needs. Is it a step in the direction for the future of fundraising or a distractor?
Crowdfunding gained traction starting in 2003 and took off in 2008 during the recession. In 2013, the World Bank estimated that $96 billion would be raised through crowdfunding by 2025. With $100 billion raised in 2017, it appears this estimate was low. With this type of success, crowdfunding is not going away and should be considered as another option for your organization.
Crowdfunding is the practice of funding a project or campaign by sending out an appeal to a large number of people, resulting in numerous small donations, via the Internet. It began as a way for businesses to create a new way of raising capital by promising contributors some type of reward and has evolved to include social projects and individual asks. The concept itself is not new; organizations have long been utilizing the concept through mass mailings and benefit events. Crowdfunding brings these tried and true ideas to the online presence.
There are numerous platforms available for organizations to begin their crowdfunding campaign. These platforms, such as GoFundMe, Chuffed, Fundly, and Causes, allow the organization to setup a page and define their ask. This page can be blasted out to the Organization’s social media accounts and to donors. As donations are collected they are paid directly to the platform and then routed to the organization. At this point, there could be major differences between the platforms. Some charge a percentage fee for fundraising and processing of each donation they receive. An average of these fees for the most utilized platforms is 8% plus $0.20 per gift. Putting this into monetary terms, if someone donates $100, the platform would keep $8.20, sending $91.80 to the organization. If you expand that to what the fees would be for an entire $50,000 campaign, an organization would pay $4,000 in fundraising and processing fees alone. Different variables are in play for each platform. Some charge the donors a piece of these fees, while others will waive fees for larger campaigns.
What does an organization receive for the fees the platforms charge? The benefits are numerous. The sites are user-friendly and can easily be communicated to a large pool of new and existing supporters. Each time the campaign gets shared online, the potential for it to spread beyond the organization’s region and country increases considerably. The campaign takes on a life of its own, bringing in donors and money faster than traditional fundraising approaches. With time contributed by the organization, weekly updates and a visual representation of the goal will help continue to involve contributors in the campaign.
The time requirement of the organization varies, but you get out what you put in. A successful crowdfunding campaign starts with a detailed plan and goal. Experts recommend establishing a crowdfunding committee to dedicate their time solely to the online campaign. This includes establishing the campaign, writing the purpose and goals of the campaign, continuing communication with the donors, and continuing to push online presence. One must also consider the time committed to crowdfunding and the fact that most crowdfunding donors are less likely to become repeat, long-term donors.
Organizations also need to consider the state laws regarding fundraising. Most states require nonprofits to register prior to soliciting donations from residents of that state. In a crowdfunding situation, a nonprofit cannot determine, with certainty, where the donors will reside. A conservative approach would be to register in each state that requires it, which can take time and money away from other fundraising. As online giving becomes more popular, states will hopefully begin to address crowdfunding and give definitive guidance on how nonprofits should proceed.
From an accounting standpoint, confirm that all funds raised are tracked separately based on the restriction as communicated by the donors, and only used for those purposes. Organizations should also track gross revenue and fees separately. For example, a $1,000 donation has a $10 fee, the contributions should be recorded at $1,000 not at $990. Additional information will also need to be gathered to reflect fundraising expenses properly and time should be tracked separately and documented for the functional expense allocation, as with all fundraising efforts.
Also, acknowledgement rules apply to this type of contribution the same as any other type of contribution. Organizations should update their policies and procedures for donor acknowledgement to include any crowdfunding contributions.
For questions or additional information, please contact any member of the nonprofit team at Ketel Thorstenson.