United States
For nonprofits, digital giving is now a nearly universal fundraising tool. According to a recent charitable giving report, 88% of nonprofits accepted online donations in 2023. The trend caters to donor preferences. Two-thirds of today’s charitable givers prefer to use credit or debit cards to make donations. Yet at the same time, digital giving comes with costs for your organizations like yours. Depending on your digital giving platform, payment processing set-up, and payment method used by the donor, somewhere between 2% and 7% of every donation goes to transaction costs and platform fees.
Digital giving is here to stay, however. And the good news is that despite transaction and platform costs, digital giving often results in better return on investment for nonprofits. But it’s a ship that needs steering. To optimize your digital giving ROI, it’s essential to analyze your transaction costs as well as all the options you have to manage them. You’ll find that even small adjustments to your digital giving program will help ensure that your organization makes the most of every donated dollar.
The purpose of this article is to give you the tools to understand, calculate, and monitor your digital giving expenses. The better your grasp on these details, the more you can optimize them to your organization’s benefit. Armed with this knowledge, you will also be prepared to choose a digital giving platform whose fee structure and features work best for your revenue and giving mix. What’s more, you’ll be ready to take advantage of a number of ways to optimize or reduce your digital giving fees.
Here at Roc Giving, powered by Payroc, we specialize in serving small to midsized nonprofits. We support your missions by providing an affordable digital giving platform with intuitive tools, just the right amount of features, transparent pricing, and modern reporting and user interfaces. It’s our privilege to step you through this discussion of digital giving expenses and empower you to make choices that are best for your constituents.
The Shift to Digital Giving
Before we dive into the details of digital giving costs, let’s take a quick step back to understand how we got here. The shift from cash and check donations to digital giving began gaining momentum in the early 2000s and accelerated after 2010. The transition was caused by a number of factors.
A major reason is donor expectations. As interactions of all kinds became increasingly digital in the 21st century, financial transactions followed suit. Today’s consumers now expect the convenience, speed, and security of digital payments for everything they purchase.
When the COVID-19 pandemic came along, this trend got solidified, especially for nonprofits. In-person giving plummeted. Fundraising events, galas, and donation drives were canceled or moved online, and nonprofits had to scramble to implement or upgrade digital giving options. Donor expectations changed forever. Now younger donors and social media/peer-to-peer fundraising have amplified the shift to digital giving. Even at in-person events, digital giving is the preferred tool.
The great news is that digital giving is working for nonprofits. Because donors enjoy the convenience and immediate satisfaction of donating online, they give more. Here’s proof: Nonprofits with strong digital giving programs tend to raise three to five times more on Giving Tuesday, have higher donor retention, and attract more recurring donors.
We realize that digital giving does come with costs that your organization does not overtly incur for cash or check donations (thus the reason for this article), but it’s also important to recognize that processing cash and check donations is not free. They must be managed by staff, creating overhead costs, and are also subject to theft and bookkeeping errors. These expenses may not be as easy to pinpoint, but they are significant nonetheless.
Understanding Digital Giving Costs
Payroc has been part of the digital payments industry since its inception. As insiders, we have a deep understanding of digital giving expenses, but we know that for most people, they’re confusing. Yet we also know that the more you understand about how these expenses work, the better decisions you can make about managing them to benefit your organization and mission.
Here's how it works: Every time a digital donation is made, a number of companies behind the scenes manage the transaction and infrastructure, ensure it is being executed securely, generate the required reporting, and handle any customer support that may be needed. More broadly, these organizations are the entities responsible for developing and continually updating the highly complex payments software, meeting financial compliance regulations, protecting against fraud, shouldering the expenses when fraud occurs, operating customer and technical support programs, and more.
It might seem like digital payments transactions happen automatically, computer-to-computer, but in fact, the hundreds of thousands of people employed in this industry are hard at work every day, making it all possible.
So when a donor makes a digital donation, various organizations manage the transaction and receive a small fee for their part of the services. Here is a typical fee breakdown:
| CATEGORY | TYPE | BREAKDOWN | WHO GETS THE MONEY |
|---|---|---|---|
| Payment processing fees | Credit and debit cards | The fees you pay to accept donations via credit and debit cards get split like this: | |
| Interchange fee | The card issuer (e.g. Chase or Citi) | ||
| Dues and assessments | The card association (e.g. Visa or Mastercard) | ||
| Processor fee | The company that handles the exchange of funds | ||
| ACH (bank account transfers) | Processor fee | The company that handles the exchange of funds | |
| Platform fee | Base rate | This is the amount you pay to use your giving platform's technology and fundraising tools. | Your giving platform |
| Add-on costs | Some giving platforms charge for extras like text-to-give, custom branding, and customer support. | Your giving platform |
Doing the Math
To calculate your nonprofit’s transaction and platform fees, look up your:
- payment processing fees percentage and per-transaction costs
- ACH processing fees per transaction and per-transaction costs
- digital giving platform fees per transaction and/or flat rate per month
Don’t forget to include any add-on fees you may be paying to your giving platform for certain features or services. If you need help figuring everything out, contact your giving platform’s customer support. If your digital giving platform’s fees aren’t clear or you aren’t getting the answers you need, this may be a sign that you should switch to a giving platform partner with better transparency.
Then pull up your internal books and calculate your nonprofit’s average digital revenue per month and average number of digital transactions per month.
With all of these numbers in hand, you will be able to determine how much your nonprofit is paying each month for digital giving services overall, how much you are paying on average per credit card donation, how much you are paying on average per ACH donation, and how much you are paying in platform fees.
Now do some research on other giving platforms and redo your calculations based on their platform, processing, and add-on fees. You might find, for example, that a platform that charges a flat monthly fee versus a percentage-based platform fee is a better value or vice versa.
Of course, you must also balance platform capabilities and features against fees. If you are able to leverage a platform’s superior abilities, simpler interface, and/or personalized customer support to optimize fundraising and generate more revenue, your nonprofit’s ROI might outweigh any incrementally higher fees you may be paying.
Investigate Opportunities to Improve ROI
While you can’t eliminate digital giving transaction and platform fees, you may be able to lower them. Here are some opportunities to look into:
- See if your digital giving platform has an option that allows donors to help cover transaction costs. Industry experience shows that anywhere from 50 to 90% of donors will say yes to this if it is presented as a simple checkbox, and it can recoup a lot of your digital giving costs. Note that sometimes this is presented as a “donor tip” or “operational expense offset” to help cover processing costs.
- Ask your digital giving platform if they offer a nonprofit discount and if so, if your organization is receiving the discount. Platform fees are often reduced for 501(c)(3) nonprofits.
- Similarly, Visa and Mastercard offer special discounted interchange rates to registered nonprofits, which can cut your processing fees in half compared to regular retail rates. To get this discount, be sure you’re using the right Merchant Category Code (MCC). You must be set up under MCC 8398. Ask your payment processor to double check this, or easier yet, if you are using a giving platform that handles both donations and payment processing, ask them.
- Encourage the use of ACH for recurring giving. It costs less per transaction than credit card processing, and many donors are happy to make the switch from credit card to bank account if you educate them about the difference it makes for your organization and mission.
- Make sure you are using all your platform features that could be helping you bring in more funding. See our Boosting Donor Retention and Best Practices articles for more tips on making the most of your digital giving platform.
We’re Here to Help
Digging into digital giving platform fees can seem daunting, but optimizing your nonprofit’s ROI is worth it. If you have questions and aren’t getting satisfactory answers from your giving platform’s customer support team, Roc Giving by Payroc is here to help. We offer complimentary consultations for nonprofits, whether you’re a customer of ours or not.
Visit https://payroc.com/solutions/roc-giving/ or contact us at rocgiving@payroc.com to get started. You can also schedule a demo here.