A Cost-Benefit Analysis of Nonprofit Fundraising Software
There is no question that the nonprofit sector in the United States is an integral part of the economy and society. Why, in 2012, the tax exempt sector represented 5.4% of the nation’s GDP, contributing $887.3 billion to the economy and this number is set to increase with time if past trends are anything to go by. In the last decade itself, the sector has grown by approximately 8.6% and this number is on the rise.
The very nature of nonprofits’ existence ensures that they are much needed now and will be in future. They exist to provide services to people and they make this their mission and bottomline. However, nonprofits need financial resources to carry out their missions and this is where fundraising comes in. I’m sure nonprofit organizations will agree with me when I say that Fundraising is a very important ongoing activity that is still, for the most part, primarily manually operated; 49% use manual methods.
Nonprofit Fundraising in the Digital Age
In this technology age, many nonprofits have started considering how they can use software to make the most of the ever changing technology trends. Our blog post on the research conducted by fundraising and donor management technology evaluation firm Software Advice highlights how nonprofits have considered buying or have bought software for their needs.
In 2014, the research team at Software Advice observed that 52%of buyers request fundraising management software most often.
Based off last year’s research findings, Software Advice’s research team conducted more research this year to gather information on the usage of fundraising and donor management software. They surveyed 190 fundraising professionals worldwide to find out how they use fundraising software, the benefits they have gained and the challenges they have overcome.
Software purchasing may seem like an activity for large organizations but most respondents in Software Advice’s sample represent small nonprofits—23 percent with an annual operating budget of less than $250,000, and 28 percent with a budget between $250,000 and $500,000.
The findings from this research provide the data that fundraising professionals need to make an informed decision when they are considering a fundraising software purchase.
So let’s get down to the findings of this research and chart out a Cost-Benefit Analysis of Fundraising Software.
The points outlined in this section are more about challenges faced by fundraising professionals in using fundraising software rather than the financial costs of investing in fundraising software per se. However, even though we can’t assign a monetary figure to these challenges, they are a cost to the organization, be it in terms of time or other resources.
The challenges below were experienced by the respondents in Software Advice’s research.
1. High Learning Curve
Technology is only as good as the user. We can have the best technology but if we don’t know how to use it, then it’s as good as being nonexistent. The users of fundraising software have to learn how to use it and this has posed to be a challenge with 67% of respondents saying that there is a high learning curve associated with fundraising software.
Janna Finch of Software Advice states in her research report that this challenge can be overcome through proper training. Most software vendors offer online training resources, including knowledge bases, webinars and online support. Some vendors also offer on-site training for a fee.
2. Lack of customization options
67% of respondents said that the software could not be adapted to align with existing business processes. This is usually the case for many organizations that go for Off-the-shelf software instead of bespoke (custom) software. Off-the-shelf software is built to satisfy more generic needs as opposed to custom software that is more specialized in nature.
This challenge can be addressed by purchasing bespoke software but many organizations may not go for this type mainly because of the high cost of purchasing custom-built software.
Another, more plausible, way to address this challenge would be to participate in a free demo/trial of the said software and read reviews about it to see if other users have had similar concerns or issues. (Software Advice).
Here’s a chart showing some other challenges faced by the sample of respondents.
Users challenged by learning curve, few customizations
Most of the challenges could be addressed by installing a trial version of the software and checking to see how well it fits in with the organizational needs.
Kristin Urban, manager of data services for the Chesapeake Bay Foundation (CBF) strongly recommends networking with other fundraising professionals on social media, such as LinkedIn, to see what software they are using. Then, she says, a formal request for information (RFI) can be created to evaluate products and ensure an organization is selecting the right software for its needs. (Software Advice Research)
1. Better donor trend analysis
30% of the respondents said they relied on Interaction Tracking. This feature records (either automatically or manually) inbound and outbound interactions with donors which help the organization to uncover giving trends and patterns. Such trend analysis helps to streamline the organizations’ campaigning so that they can target certain donors for specific fundraising campaigns.
Case in point is that of Cretia Bunney, executive director of the United Way of Moscow/Latah County. Bunney says she depends on fundraising software to track donations and giving history in order to uncover trends, which is helpful in developing appeals.
2. Increased Response Rate and Donations
This comes about as a result of effective donor base segmentation and targeting. Market Segmentation and Targeting might sound like a business strategy for big multinational corporations but the reality is that even small nonprofits can benefit greatly from this strategy. 9% of the research respondents said they found the List Segmentation feature of software to be useful.
Consider this, a nonprofit classifies/segments its donors into groups based on common criteria such as demographics and giving patterns, for example. It can now observe these segments and study their giving patterns such as: what causes do donors in a certain segment support? Once the nonprofit has enough information on its segments, it can tailor its fundraising campaigns to suit each segment’s donation patterns; which is the targeting part of the strategy.
This strategy ensures that donors are not bombarded with information they don’t really need and thus they can focus on supporting the causes they really care about; a classic case of less is more…less irrelevant information is equal to increased response rate.
3. Appropriate allocation of staff’s hours
As is the case with technology, the automation of certain processes frees up the human resource to focus more on mind related tasks. 11% of respondents found the Automatic Receipts feature of software to be a feature they used most often. With fundraising software, the staff can use their time in strategic activities like more face time and relationship building with donors instead of manually entering data.
4. Reduced chances for duplicity and error
Software, when used correctly, increases efficiency by reducing the number of errors. Fundraising software offers the ability to integrate systems such as the donor management system and the Accounting system, for example. This kind of integration reduces the chances of double entry and data errors as has been observed by 20% of the respondents who said they relied on Accounting Integration as a very useful function of fundraising software.
5. Reduced Campaign Costs (in monetary terms)
Reduced monetary cost to the organization is a trickle-down effect of all the benefits outlined above. It is but natural for the organization to save money when efficiency is increased.
While software does pose challenges to its users, most of the research respondents agreed that Fundraising software has mostly had a positive impact on their fundraising activities as the chart below shows:
Every core fundraising activity was positively impacted with the implementation of fundraising software and 99% of the respondents reported an increase in donations collected
In addition, 56% of the respondents expect their organization to increase spending on fundraising and donor management software in 2015, either by upgrading their current system or purchasing new software.
The positive impact of fundraising software and the expected increase in spending on fundraising software by the majority of fundraising professionals could be used to make the case for why fundraising software is the way forward for your nonprofit.
Here's Software Advice's research slideshow for more information on the research results as well as some charts with key figures:
Do you use fundraising software in your nonprofit? What other costs or benefits have you come across while using such software? For those nonprofits who don't use fundraising software, do you plan on investing in such software? Share your thoughts with us!