Professional Fundraisers

Online professional fundraisers: the unsung heroes for nonprofits

Amar Shah
November 16, 2023

Nonprofits are constrained in growing donations by current donation levels, capital, expertise, and experience.

Online Professional Fundraisers can fill those gaps, allowing nonprofits to increase their donations and overall impact.

In this blog, we’ll discuss the social good of online Professional Fundraisers that engage in sweepstakes, drawings, raffles, and other fundraising  activities.

We’ll also point out the curious double standards against online Professional Fundraisers and the nonprofits they partner with.

For purposes of this blog, we’ll call those fundraisers “Online Professional Fundraisers,” even though they primarily engage in sweepstakes, drawings, raffles, ticket and event donations, and other such  activities.

Incremental Good

The average nonprofit in the United States receives a total of $333,000 in donations annually.

$330k is hardly enough to staff a marketing team, build out a website, acquire donor data, solicit donations, and run professional solicitation campaigns.

For many nonprofits, partnering with an Online Professional Fundraiser is a way to break out of the mass of nonprofits, ramp up donations, and elevate their cause.

If a nonprofit wants to run their own charity sweepstakes, the nonprofit must make significant investments.

The nonprofit investments include building or buying a large potential donor database, being legally compliant (no small feat), marketing and selling their sweepstakes, purchasing prizes and awards, or arranging for donated awards or events.

Additional investments include creating and hosting a website and donor support infrastructure, hiring donor support representatives, and compensating the nonprofit’s employees.

On top of that, of course, is the monetary desire for a nonprofit to receive net donations (donations in excess of costs) through its campaign.

All of the above costs, knowledge, experience, and effort are resources that most nonprofits do not have available to them, particularly smaller nonprofits.

A concentrated donation raising effort which relies on expertise is simply beyond the typical nonprofit’s scope of capability.

The nonprofit cause, whether it’s brain cancer or any other myriad of social needs, goes unsupported, left to wither away.

Enter: the Online Professional Fundraiser which can conduct donation contests in a repetitive, profitable (for the Online Professional Fundraiser and the nonprofit) manner for myriad nonprofits, augmented by all the expertise and capital resources that it has.

The subsequent money that comes into the sweepstakes, and the portion that goes to the nonprofit, is 100% incremental to any money the nonprofit would raise otherwise.

Like the lottery, the expense ratios, when the costs of the Online Professional Fundraiser are considered, are usually in excess of the large donor skewed standards established by the BBB and Charity Navigator.

The nonprofit then reports – based on state regulations – the appropriate revenue breakdowns for its partnership with the Online Professional Fundraiser.

And the nonprofit, armed now with more money and resources, can pursue its worthy cause with confidence. 

Heavily Regulated

Online Professional Fundraisers are heavily regulated in most states.

They are required to disclose their contractual relationships with nonprofits, report payout ratios, and more.

Furthermore, Online Professional Fundraisers are required to file regular reports and financial updates on any campaigns that they run.

Finally, Online Professional Fundraisers are required to fully disclose to sweepstakes participants the portion of the sweepstakes or contest that is being donated to the nonprofit.

A Win/Win/Win, right?

The way Online Professional Fundraisers help nonprofits seems like a win/win/win.

The nonprofit gets more resources.

The cause championed by the nonprofit gets more funds.

The Online Professional Fundraiser makes a profit on the capital and effort it puts at risk, as well as employing more people to develop its unique service.

But yet, there is criticism.

Curious Criticism

We’re a little perplexed by the criticism received by Online Professional Fundraisers who run charitable games like sweepstakes, drawings, and raffles.

Assuming the Online Professional Fundraiser is abiding by state laws and regulations, what can the perceived harm be for a Online Professional Fundraiser to help a nonprofit raise funds and in so doing, make a profit?

Nonprofits willfully enter into agreements with Online Professional Fundraisers to allow them to engage in sweepstakes, drawings, ticket donations, or raffles in exchange for some portion of the proceeds from the sale of tickets going to their nonprofit.

The Online Professional Fundraiser gets the value of promoting a socially attractive cause, the nonprofit gets incremental donations, and the participants/donors get a chance at a lucrative prize.

Critics will point to high administrative costs or the fact that Online Professional Fundraisers are earning a profit as the main source of their criticism.

Curious Standards

There are a few organizations that rate nonprofits based on their governance and expense ratios.

The main rating organizations are Charity Navigator and The Better Business Bureau (BBB).

Charity Navigator and the BBB have standards for charity accountability.

These standards encompass a type of “one-size-fits-all” approach which skews the ratings towards large, established, known nonprofits with both the infrastructure and established donor network.

And these metrics and requirements penalize smaller nonprofits who seek to have a breakout for their cause.

The larger nonprofits have the resources to efficiently engage in money raising at scale and rely on established, repetitive donors for a low-cost donation stream.

Within the BBB standards, 20 in all, there are two specific categories that nonprofits who use Online Professional Fundraisers often fall short on:

  • Fundraising expenses in excess of 35%
  • Spending at least 65% of money raised on program expenses

But, again, these standards serve the needs of larger, established charities with the funds, capital, and infrastructure to promote their specific cause.

In fact, if the BBB recommendations (they are only recommendations, the BBB is not a law enforcement entity) were applied to the average nonprofit, they would only be able to spend $116,500 per year on money raising activities.

The BBB limits money raising activities to 35% of total donations.  If the average nonprofit receives $333,000 per year in donations, then the average amount they can spend on raising money is $116,500.

For comparison purposes, the Lutheran Services in America charity, the largest charity in the US, gets donations of approximately $23 billion per year.

By the BBB Standards, the Lutheran Services in America could spend a whopping $8 billion raising money (it does not, its expense ratios are quite low) and still be within the BBB guidelines.

Or the American Cancer Society, which spends approximately $27 million raising money every year.

The American Cancer Society is a well-run, admirable organization and it meets the requirements of the BBB maximum percentages.

But note that the American Cancer Society has the capital, donations, and funds to grow its donations and perpetuate its cause because of its size.

Smaller nonprofits are constrained by the ratios recommended by Charity Navigator and the BBB and, for all intents and purposes, sentenced to an existence of perpetual Lilliputian size.

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Bad Assumptions

Inherent in the assumptions of the rating agencies is two critical mistakes:

One, the rating agencies ignore the necessity for investment and growth in the early, or smaller, stages of a nonprofit organization's existence.

A nonprofit which wishes to advance its cause and educate people has to either spend its own, direct raised funds, or partner with another organization which can help them raise funds.

Commercial Co-Ventures, partnerships of Cause Marketing between for profit businesses and nonprofits can be one method to raise additional funds.

But there are 1.5 million nonprofits in the US.

And businesses typically seek to align with nonprofits which have a higher nonprofit name (i.e. brand) recognition.

If you are a national business selling to consumers online, who would you rather partner with?

A small, but worthy cause aligned with an equally small nonprofit.

Or a massive, well-funded and branded nonprofit that appeals to the largest possible customer cross section?

Consider the American Heart Association.

The AHA raises $765 million annually and spends over $100 million raising donations and establishing its own brand?

Or consider the End Brain Cancer Initiative, which raises $350,000 per year and spends $11,100 raising donations and promoting its brand?

The current rating methods are highly skewed in favor of large organizations and the resources they can use for money raising.

Two, the rating agencies inherently assume that there is a finite pool of donatable funds and that incremental efforts by nonprofits, together with Online Professional Fundraisers, to raise money with unique methods siphon money from the overall donations pool.

But, in fact, Online Professional Fundraising occupies a unique corner of consumer entertainment.  

Consumers engage in Online because it gives them an entertaining sense of a chance at winning a prize or a drawing.

The charitable value of the sweepstakes is tertiary to the overall purchase decision, which is primarily driven by a chance to win a prize.

So, consumer money spent in this category does not compete with altruistic funds donated for charitable purposes.

The Biggest Offender

Based on the BBB standards, the two largest donation receiving charities in the U.S. fall dramatically short of the recommended BBB guidelines.

Chances are you have donated through games of chance to these charities, which spend their proceeds on parks, education, and other social good programs.

Of course, we are talking about Powerball and Mega Millions, which I’ll collectively call “the lottery”.

The lottery is played in 45 states in the U.S.

Americans spent $108 billion in lottery tickets in the last complete calendar year, 2022.

That’s 10x National Football League (NFL) ticket sales for the same period.

Or 7.5x NFL, NBA, and MLB combined ticket sales.

Wow!

And the lottery BBB ratios?

The lottery only donates approximately 35% to states for their various causes (public parks, education, gambling addiction treatment, etc.).

A whopping 65% goes to marketing, administrative costs, and prizes.

The lottery is 50% below the BBB standards.

And it’s never mentioned by any of the standards organizations.

Summary

Online Professional Fundraisers provide a valuable, incrementally positive role in nonprofit fundraising.

By pooling capital, expertise, systems and experience, an Online Professional Fundraiser can help a smaller nonprofit jumpstart its money-raising efforts and create incremental donations.

Critics against Online Professional Fundraisers seek to apply fundraising metrics and established norms against fundraising methods that are different and unique to sweepstakes-oriented entertainment.

Rather, sweepstakes-oriented entertainment, like Powerball and Mega Millions, operate under different market and economic realities which increase their cost ratios and naturally decrease their net donations ratios.

Donors should consider nonprofits that engage in sweepstakes-oriented entertainment as being earnestly intent on advancing their cause and are committed to using new, and creative ways to help their community.