There are offers of “free money” that simply appear in the organization’s account. But just like the well-known saying about lunch, they’re hardly free. With this in mind, we’d like to highlight two “offers” that organizations need to be especially wary of when raising funds for their cause.

The Fundraiser:
The fundraiser calls from an external call center that has offered to raise money for the organization. The organization receives a percentage of the funds; the rest is commission. A typical split is 25% for the organization and 75% for the call center.

There are several pitfalls with this model.
Pitfall 1: The organization never sees the cost. The 75% commission is only visible in the call center’s financial statements. The 25% transfer to the nonprofit is recorded as a net amount in the financial statements. After all, 2 million kroner for a good cause certainly looks good. In reality, the call center has raised 8 million in the organization’s name and is left with 6 million for itself.
Pitfall 2: The “fundraiser” model typically involves collecting one-time donations. The call center has no incentives to recruit regular donors for the organization or to convert those who have donated once. In addition, the telemarketing company often represents multiple organizations or various projects under the same umbrella organization. As a result, donors may feel bombarded with constant requests to support different—but seemingly worthy—causes. This is, of course, perceived as extremely annoying.
Pitfall 3: This occurs when donors find out about this distribution of funds. When that happens, they feel deceived. Exactly how much is expected to go toward the cause varies, and some donors may have unrealistically high expectations in this particular area. However, Charity Monitoring Norway has not yet encountered a donor who thinks that 25 kr. out of every 100-lapp collected is acceptable.

To provide transparency regarding the distribution of revenue between professional and nonprofit activities, Charity Monitoring Norway requires all approved organizations to report fundraising on a gross basis. The total amount raised will thus be visible in the organization’s financial statements.

The Seller:
The organization enters into an agreement with a company that sells completely ordinary goods over the phone or via its website. The products—which you could just as easily buy at your nearest convenience store—are sold at significantly inflated prices under the pretense of supporting a good cause. Without the ability to operate under the guise of a nonprofit organization, the company would have had great difficulty selling anything at all.

The organization receives a relatively small percentage of sales or, at worst, a fixed commission. The company keeps the rest. As in the “fundraiser” scenario, neither the organization nor the donor sees the actual cost. Some account for the entire amount as a “donation” and wash their hands of the entire sales process. The rule of thumb for fundraising oversight is that this type of sale counts as fundraising if the markup on the product is 40% above market price. In cases where there is a significant markup, there is no doubt that the donor’s intention is to support the organization—not to purchase an entirely ordinary product. The donor’s expectation of how much will go toward the cause is just as high. Even if the organization is good at managing the money it receives, it does little good if only a fraction of it actually reaches the organization. In the worst case Charity Monitoring Norway has seen, only 7% of the money reached the organization.

In many ways, the “seller” is a “fundraiser” in disguise. Instead of raising money and sending out “symbolic items” such as soup recipes or postcards (obviously a “fundraiser”), they sell ordinary goods. Although these goods have intrinsic value, they are sold at an inflated price that leaves little doubt as to the motivation behind a purchase: to support the nonprofit organization.

This does not mean that nonprofit organizations cannot engage in ordinary sales. It is natural for an organization involved in lifesaving or boating safety to sell life jackets or first-aid kits for boats. These products often serve a practical purpose—they can save lives. The challenge arises when these items become significantly more expensive than genuine alternatives, without any obvious difference in quality.

Similar cases may arise
The examples above are stereotypes, and other variations of “free money” that look similar may appear. Common features to watch out for are:
– Hidden costs. The third party keeps the lion’s share, and the money never reaches the organization’s account in full. But the reality is that the costs are borne by the donors, even if the organization doesn’t see them.
– The organization has nothing to lose.
– One does not take responsibility for the relationship with the donor.
– Lack of transparency.
– Unfavorable percentage distribution of revenue.

Contracts with the business partner may also be drafted in a way that is disadvantageous to the organization. An example of this could be a situation where a third party owns the donor/customer list. In that case, the organization would not be able to contact those who have previously donated to the cause if the organization were to terminate its collaboration with the external provider.

Professional third parties
This is not a criticism of external fundraisers or salespeople. There are third parties that nurture existing customers and convert one-time donors into regular donors. Using a professional service provider can be more cost-effective than hiring someone to handle it in-house. There are also in-house call centers run by members or by the organization itself, and this can be a highly effective way to reach out to people.

Charity Monitoring Norway does not dictate how organizations raise money. It is not possible to say, “This is how you succeed at fundraising,” and draw two lines under the answer. A fundraising method that works very well for one particular organization will not necessarily work for another. This is because organizations are structured differently, with widely varying purposes and potential donor groups. What’s important is that the organization or association is aware of its responsibilities. This involves having procedures in place for how fundraising should be conducted and regularly monitoring both internal and external fundraisers or salespeople. It also involves making all fundraising costs transparent and regularly following up on and reviewing agreements that have been entered into. Ultimately, donors want to support a worthy cause, not generate large profits for the owner of a private company.