“Often the overhead on processing a small donation can be fairly high, so it could be worth donating to fewer organisations so that your donations to those you give to are larger.”
I am donating $50 automatically each month to each of the 5 organizations. Would it make much of a difference if I just picked one and donated $250/month to it? How much of a difference? How much is the overhead on processing automatic monthly donations?
I believe the typical nonprofit credit card rate (for Visa and Mastercard) is 2.2%+0.30 USD. So for 5 x $50 donations, it’s costing around $1.4*5 = $7 to process your credit card payments across all organizations. For my organization, entering a donation in whatever systems we enter it in probably takes around 5 minutes. I’d guess that with taxes, etc., the average EA nonprofit ops person costs around $40 / hour, so that’s another $3.33 per donation = $16.67 across all donations. So of your $250, around $23.67 is going to overhead costs.
If you gave it in one gift, the fees would be $5.80, and you’d only have $3.33 in other ops costs, so $9.13 total.
So basically giving to one organization would increase the amount of your donation going to non-overhead things by probably around $14 / mo, or $168 / year, assuming the organization has other things for the operations staff to do in the 20 minutes they are saving by not processing the extra donations.
Abraham, does it still take processing time for your staff (or for that matter credit card processing fees) when people set up monthly recurring donations by direct debit?
So for us currently, the processing time doesn’t change much depending on the frequency of the gift. But I will say that we don’t invest a lot in improving this process, because overall we don’t put much time into it, so maybe at an organization with a way higher volume of small donations, they would have automated some of what I described. That being said, I’ve worked at a handful of fairly large nonprofits that are still doing this manually, so it just is going to depend on the organization, and 5min / transaction seems like a safe bet. There are other costs besides just processing—e.g. a bit of time spent on end-of-year donation receipts potentially, etc., that you might counterfactually cause the nonprofit to incur.
If you’re doing an ACH transfer monthly, the costs will vary by provider, but they are a lot cheaper than credit cards. I think Plaid, which is a really common ACH service, costs around 0.80%, capped at $5, or something like that. There is more variation here across providers though, unlike credit cards, where there seem to just be industry standard rates.
I do think there are some genuine advantages to giving monthly, or on a recurring basis, to some organizations. A lot of EA organization keep pretty large amounts of reserves in the bank (at least, compared to similarly sized other nonprofits I’ve seen, it seems like). But if you’re giving to a small organization that doesn’t have large reserves, the cashflow certainty that comes with monthly donations might offset to a large degree the extra processing costs, etc.
If I have to guess the best way to give to reduce costs, stress, etc. on an organization, I’d guess it would be a lump sum given in maybe March-May, when the fundraising season is in a lull, but I really think that’s probably only very marginally better than giving in whatever way works best for you, monthly, etc., so if monthly helps someone give with less stress, it’s probably still worth doing. And if it is a small organization, monthly can really help.
When I donate to Life You Save, the money is divided equally and goes to their 22 highest rated charities. Is this inefficient?
Givewell has something similar. You can donate monthly to Givewell and have them forward the money to several different charities from their list. Is this inefficient?
In these cases, it’s likely that you’re getting better returns on credit card fees than giving directly to 22 charities, but marginally worse efficiency on processing costs, since it is probably around the same processing cost for all 22 charities, and also a processing cost at The Life You Can Save, etc.
Based on this, from a pure cost-to-programs view, I’d guess that if it is split up among at least 3 or 4 charities or more, the credit card fee benefits will outweigh the lower efficiency from the processing, so it is probably usually worth giving to something like the GiveWell maximum impact fund or TLYS, or the EA Funds, etc.
Also, I think getting all the benefits you also get from giving via those funds, like the ones esentorella describes, makes it especially worthwhile to continue giving via those funds (e.g. their research and understanding about how to optimally redistribute the funding).
When I donate through GiveWell, I donate through their Maximum Impact Fund, so that GiveWell can flexibly decide how and when the money will be allocated among their recommended charities. That way, if one charity needs less money than expected, GiveWell can steer money away from that organization and towards others that need it more. Since they’re in ongoing contact with the charities they recommend and things can change over time, they’re better placed to allocate donations than I am.
“Often the overhead on processing a small donation can be fairly high, so it could be worth donating to fewer organisations so that your donations to those you give to are larger.”
I am donating $50 automatically each month to each of the 5 organizations. Would it make much of a difference if I just picked one and donated $250/month to it? How much of a difference? How much is the overhead on processing automatic monthly donations?
I believe the typical nonprofit credit card rate (for Visa and Mastercard) is 2.2%+0.30 USD. So for 5 x $50 donations, it’s costing around $1.4*5 = $7 to process your credit card payments across all organizations. For my organization, entering a donation in whatever systems we enter it in probably takes around 5 minutes. I’d guess that with taxes, etc., the average EA nonprofit ops person costs around $40 / hour, so that’s another $3.33 per donation = $16.67 across all donations. So of your $250, around $23.67 is going to overhead costs.
If you gave it in one gift, the fees would be $5.80, and you’d only have $3.33 in other ops costs, so $9.13 total.
So basically giving to one organization would increase the amount of your donation going to non-overhead things by probably around $14 / mo, or $168 / year, assuming the organization has other things for the operations staff to do in the 20 minutes they are saving by not processing the extra donations.
Abraham, does it still take processing time for your staff (or for that matter credit card processing fees) when people set up monthly recurring donations by direct debit?
So for us currently, the processing time doesn’t change much depending on the frequency of the gift. But I will say that we don’t invest a lot in improving this process, because overall we don’t put much time into it, so maybe at an organization with a way higher volume of small donations, they would have automated some of what I described. That being said, I’ve worked at a handful of fairly large nonprofits that are still doing this manually, so it just is going to depend on the organization, and 5min / transaction seems like a safe bet. There are other costs besides just processing—e.g. a bit of time spent on end-of-year donation receipts potentially, etc., that you might counterfactually cause the nonprofit to incur.
If you’re doing an ACH transfer monthly, the costs will vary by provider, but they are a lot cheaper than credit cards. I think Plaid, which is a really common ACH service, costs around 0.80%, capped at $5, or something like that. There is more variation here across providers though, unlike credit cards, where there seem to just be industry standard rates.
I do think there are some genuine advantages to giving monthly, or on a recurring basis, to some organizations. A lot of EA organization keep pretty large amounts of reserves in the bank (at least, compared to similarly sized other nonprofits I’ve seen, it seems like). But if you’re giving to a small organization that doesn’t have large reserves, the cashflow certainty that comes with monthly donations might offset to a large degree the extra processing costs, etc.
If I have to guess the best way to give to reduce costs, stress, etc. on an organization, I’d guess it would be a lump sum given in maybe March-May, when the fundraising season is in a lull, but I really think that’s probably only very marginally better than giving in whatever way works best for you, monthly, etc., so if monthly helps someone give with less stress, it’s probably still worth doing. And if it is a small organization, monthly can really help.
When I donate to Life You Save, the money is divided equally and goes to their 22 highest rated charities. Is this inefficient?
Givewell has something similar. You can donate monthly to Givewell and have them forward the money to several different charities from their list. Is this inefficient?
In these cases, it’s likely that you’re getting better returns on credit card fees than giving directly to 22 charities, but marginally worse efficiency on processing costs, since it is probably around the same processing cost for all 22 charities, and also a processing cost at The Life You Can Save, etc.
Based on this, from a pure cost-to-programs view, I’d guess that if it is split up among at least 3 or 4 charities or more, the credit card fee benefits will outweigh the lower efficiency from the processing, so it is probably usually worth giving to something like the GiveWell maximum impact fund or TLYS, or the EA Funds, etc.
Also, I think getting all the benefits you also get from giving via those funds, like the ones esentorella describes, makes it especially worthwhile to continue giving via those funds (e.g. their research and understanding about how to optimally redistribute the funding).
What do you mean by inefficient?
When I donate through GiveWell, I donate through their Maximum Impact Fund, so that GiveWell can flexibly decide how and when the money will be allocated among their recommended charities. That way, if one charity needs less money than expected, GiveWell can steer money away from that organization and towards others that need it more. Since they’re in ongoing contact with the charities they recommend and things can change over time, they’re better placed to allocate donations than I am.