Give and Take

At Globalgiving.com, donors can contribute as little as $25 to any of hundreds of projects, such as drilling new wells for fresh water in Bangladesh, teaching computer skills to rural students in Sri Lanka, and providing emergency shelter to children orphaned by the May earthquake in China.

GlobalGiving bills itself as a way for small donors to connect directly to an international project, at a fraction of the cost it would have taken a decade ago to find such a project, deliver money to it, and learn whether it was working. Donors can get online updates on the projects they are supporting and see pictures of people who benefited from their gifts. They can even talk by phone with local leaders of the efforts.

“We’re trying to create the next best thing to actually visiting the project,” says Dennis Whittle, GlobalGiving’s co-founder and chief executive.

Paying the Bills

GlobalGiving, which was founded in 2000, is one of an increasing number of nonprofit Web sites that enable small donors to make gifts or loans directly to charities, low-income individuals, and schools. The sites are popular with large foundations and wealthy individuals, who have paid to help the organizations get started, and the number of small donors making gifts or loans through the sites is rising rapidly.

But even as the groups enjoy early successes, most of them want to find a financing approach that will allow them to thrive over the long haul. They know they cannot keep relying on wealthy benefactors, since most of the donors and foundations say they want the charities to be able to make it on their own financially in the next three to five years.

Most of the new charities pay their bills in part by charging administrative fees for each gift made through their sites. The fees are either voluntary or mandatory, and range from 10 to 25 percent of the donation. But that is sensitive territory for groups that are stressing their low cost and their appeal to donors of modest means.

GlobalGiving applies a mandatory fee — 10 percent of the value of the gift — to each donation, plus small additional fees for credit-card charges and wire transfers.

“The cost is not zero,” Mr. Whittle says. “This thing cannot go on if we don’t cover our costs. Once people understand that, they’re pretty good about embracing the fee.”

Dozens of Sites

The approach GlobalGiving takes is sometimes called peer-to-peer philanthropy.

Other fast-growing organizations that use that approach include Kiva, which allows users to make zero-interest loans to aspiring business owners in developing countries; DonorsChoose, which connects donors to projects at schools around the United States; and Modest Needs, a site that links donors with people who need money to get back to work or become self-sufficient.

Dozens of such sites have started in the past eight years, raising tens of millions of dollars for charity.

Peter Deitz, the founder of Social Actions, a site that aggregates giving opportunities by providing links to 19 peer-to-peer fund-raising sites, expects to double the number of sites his charity links to in the next year.

The Omidyar Network, the grant-making organization established by Pierre Omidyar, the founder of eBay, has given almost $6.8-million to DonorsChoose, $5.5-million to GlobalGiving, and $450,000 to Modest Needs. (eBay, by the way, has its own answer to Kiva — a microfinance site called MicroPlace.com that is organized as a for-profit company.)

“You’re democratizing philanthropy so that everyday people get the same treatment that very wealthy philanthropists have always received,” says Dena Jones Trujillo, an Omidyar investment manager.

Kiva, probably the best-known of the sites, faced an unusual problem after being featured on The Oprah Winfrey Show in late 2007: It briefly had more people coming to its Web site eager to hand out loans at zero-percent interest than it had small entrepreneurs who needed the cash.

“Thanks Kiva Lenders!” the site said, temporarily turning away aspiring lenders. “You’ve funded EVERY business on the site!!”

Percentage Fees

None of the charities that offer the “peer to peer” approach are yet covering all their costs through fees, although Kiva is close.

Kiva encourages donors to pay an optional 10-percent fee, which currently produces revenue of about $1.4-million per year — enough to cover 75 percent of the charity’s budget.

Taking a percentage of each gift, through an administrative fee, is not a simple decision.

Most buyers don’t seem to mind if eBay takes a cut on, say, a camera purchased from a vendor on its Web site, provided the price is cheaper than that found elsewhere. And eBay is able to charge a smaller fee than the nonprofit direct-giving sites because of the company’s tremendous volume.

But when making a charitable gift, some donors think twice if they know the middleman is taking a cut.

That’s why many United Ways turn to wealthy donors to underwrite the administrative costs of annual-giving campaigns — they can then advertise to other participants in the campaign that 100 percent of their gifts will go to nonprofit groups. And that is why sites like DonorsChoose and Kiva have yet to make the fees mandatory.

The decision to avoid mandatory fees has attracted criticism from some charity experts, who believe that direct-giving organizations, like other nonprofit groups, should not be bashful about asking donors for money to support their organizations.

Allison H. Fine, the author of Momentum: Igniting Social Change in the Connected Age, recently served on a panel discussion at a conference in Washington with Charles Best, the founder and chief executive of DonorsChoose. The charity charges an optional 15-percent fee for gifts to schools with poor students, and a slightly higher optional fee for gifts to schools in more affluent areas. Ms. Fine later criticized DonorsChoose on her blog for making its fee optional.

“Why not just make it a part of what they do, instead of pretending that it’s optional?” she says in an interview. “It’s not optional on the part of DonorsChoose. They couldn’t have an organization without it.”

Mr. Best says DonorsChoose wanted no one to be discouraged from giving through the site.

“Our Web site does attract some people who have become skeptical about writing checks to big institutions,” he says. “They didn’t know where their money was going, and didn’t have a connection to people touched by their gifts. Given that profile, we felt we needed to let donors ‘choose’ when it comes to our operating costs, as well as with the classroom projects on our site.”

He notes that 90 percent of the people who donate through the site decide to pay the optional fee, and that the fees cover roughly 30 percent of the charity’s budget. DonorsChoose is growing rapidly — with volume doubling nearly every year — and Mr. Best predicts the optional fees will cover 100 percent of the budget within three years.

“It’s not that we disagree” with Ms. Fine’s reasoning, he says. “But so long as 90 percent comply with this fulfillment fee, functionally it is as though it were required.”

Carolyn Jacoby, a gemologist in Ridgewood, N.J., says she has given to dozens of DonorsChoose projects since she discovered the site in December 2006 while looking for a way to support the elementary school she had attended in Brooklyn.

She enjoys browsing the site for uncompleted projects — particularly literacy efforts for preschool through second grade — that other donors have already contributed to and that she can complete with a gift of $100 or less. DonorsChoose gathers and ships all materials to schools, but it does so only after a project has received all of the requested money.

“It’s like a community effort to support something,” Ms. Jacoby says.

She agrees to the optional fee most of the time, she says, but occasionally declines to pay it. She realizes that DonorsChoose needs revenue to pay competitive salaries, and to work with the schools, but she also believes that donors, including herself, might be turned off if the fee were required.

“My primary interest is the project,” Ms. Jacoby says. “DonorsChoose is smart to give me the option of having all the money go to the project.”

Calculating Options

Deciding on an amount to charge donors is more art than science, though some direct-giving organizations have chosen a structure that they believe will fully cover their costs when they become larger and have greater volume through their sites.

Mr. Whittle, the chief executive of GlobalGiving, says the site’s 10-percent fee is low by the standards of other organizations that promote international development. He’s a former executive of the World Bank and cites studies showing that in many cases less than half the money loaned by the World Bank actually gets into the hands of people working locally.

“Sometimes in order to transform a space you have to take a position that some people think is just crazy,” he says. “We set this for us as a challenge to make us as disciplined as possible.”

Although the 10-percent fee is required, the charity does offer a money-back guarantee, which can be recycled into another gift, if the donor is unsatisfied for any reason with the way the money was used. GlobalGiving, which is growing rapidly and expects to handle donations totaling more than $5-million this year, hopes to be able to cover all of its administrative costs through the 10-percent fee in another three years.

Ms. Trujillo, the Omidyar Network investment manager, says the fees charged by direct-giving sites are in the right range.

“I think 10 to 15 percent is just fine,” she says. “If you ask for too much more, you’re probably going to scare away donors. If you ask for much less, you’re being extremely unreasonable as to what it’s going to cost to actually run these organizations.”

The nonprofit sites aren’t likely to reduce their fees anytime soon, because completing transactions requires a fair amount of legwork. At DonorsChoose, for example, technology accounts for only about 20 percent of the $7-million annual budget. A far bigger expense — 70 to 75 percent of the budget — is personnel. One third of the charity’s 60 employees work on the fulfillment team, which validates grant requests, purchases the materials to be shipped to classrooms, and sends thank-you letters and photographs of the completed projects to donors.

“Because we provide a higher-touch experience, we’re not quite as scalable as eBay,” Mr. Best says.

Modest Needs, the site that allows people to make donations to low-income people who need short-term help, requires documentation from applicants showing that they are financially needy, and each application is reviewed by the charity’s four-person staff. Modest Needs charges donors a fee of 25 percent. For now, its expenses are entirely covered by foundation grants, including a large gift from an anonymous foundation, so revenue from the 25-percent fee goes to other people who have applied for assistance, according to Keith P. Taylor, the charity’s founder and president. But in the future, he says, the 25-percent fee may be used to cover administrative expenses.

Modest Needs hopes to eventually generate much, if not all, of its revenue by licensing its software for handling donations and communicating with donors to other charities. The software, which was custom-built for Modest Needs, is currently used by Second Wind Dreams, a charity in Atlanta that helps elderly people around the country pursue their dreams. Modest Needs could make as much as $100,000 under its royalty agreement with Second Wind Dreams, Mr. Taylor says.

Second Wind will use the software to provide descriptions on its Web site of its elderly clients and what dreams they would like to fulfill, and allow donors to click through and make a gift so that those dreams become a reality. The charity expects the new software to make its debut later this summer.

“The e-commerce model has changed philanthropy,” Mr. Taylor says. “Donors expect the same level of interaction that they get from Amazon.com.”

‘Visceral Reaction’

GiveMeaning, a site that hosts fund-raising pages on behalf of charities, decided to seek most of its money from advertising after some donors who use the site had a “visceral reaction” against the charity’s idea to begin attaching a 7-percent administrative fee to every gift.

Tom Williams, co-founder and chief executive of GiveMeaning, says experts like Ms. Fine are right that charities shouldn’t apologize for seeking money to cover their costs, but he also notes that a fledgling organization like GiveMeaning must do all it can to bring donors to the site and get them to complete a transaction.

“Small-ticket donors want something that feels the best,” Mr. Williams says. “What feels best is when none of your money is going to administrative costs.”

While some of the bigger charities that use GiveMeaning were happy to pay a subscription fee for the services the site provides, Mr. Williams knew he would lose many of the grass-roots charities on the site if he tried to impose a monthly fee for listing projects that needed money.

So instead of charging a fee to either donors or recipients, GiveMeaning turned to advertising. Mr. Williams points out that people who choose to visit a site to make a philanthropic gift are an attractive demographic group for advertisers, and he expects to complete a few lucrative corporate-sponsorship deals soon.

GiveMeaning, which is based in Vancouver and has received about $1.5-million from wealthy individuals in Canada, hopes to become sustainable within the next 24 months from advertising revenue alone. If that approach works, he won’t have to charge any fees to donors or charities — or worry about whether such fees are hurting his traffic.

“We love the fact that we live this uncomplicated life,” Mr. Williams says.

Of course, the projections of any of the Web-based nonprofit groups need to be taken with a grain of salt. A decade ago, hundreds of upstart Internet business were projecting vast profits, but precious few are still around today.

Mr. Deitz, the founder of Social Actions, which provides links to 19 peer-to-peer fund-raising sites, says even he is not sure how many of the sites will be around for the long term.

“None of the models have yet proved themselves,” he says.