Supporting the Good You Do. Online.
Online giving grew more than 5x faster than total fundraising in 2015. Who is facilitating this shift?
The U.S. philanthropy market is sizeable, stable, and growing. There are approximately 1.6 million non-profits in the U.S. collectively contributing over $2 trillion in revenue and expenses annually. However, as payments in most other markets in the U.S. have quickly moved online, charitable giving has lagged. Today, online giving still comprises less than 10% of total fundraising. Enter FrontStream.
What is FrontStream and How Do They Create and Capture Value through Digitization?
Starting its life as a traditional online payment gateway for a wide range of merchants, FrontStream today is deeply embedded within the charitable giving market, providing a broad range of solutions across the ecosystem. These solutions range from a Customer Relationship Management (“CRM”) software specifically tailored to non-profits’ needs to online peer-to-peer fundraising platforms. But why is this online shift important? Online channels are more efficient for non-profits: they lower the cost per fundraising effort and offer a higher hit rate with lower cost of access to donors. Online channels also result in rich and clean data sets that could be used to drive future giving. For example, a non-profit may ask for donors to input their salary and age range. From this data, a non-profit may be able to identify that individuals between the ages of 27 – 30 within a $75,000 – $100,000 income bracket care about a specific cause more than other groups, and they can target this market more aggressively in the future when fundraising for that cause. Finally – and especially as demographics shift – there is an opportunity for non-profits to increase donation revenue through leveraging social media and peer-to-peer fundraising. The 2014 ALS Ice Bucket Challenge is an excellent example. In an eight-week period in 2014, the ALS Association raised $115 million through an initiative where an individual would take a video of themselves pouring a bucket of ice water over their head, posting the video to social media, and nominating a few friends to either partake in the challenge or donate to ALS (with most people opting to do both). As a partner of ALS Canada, FrontStream processed approximately 10% of these donations through their online giving platform.
Although larger non-profits, such as the Red Cross, may be well-served with an expensive Enterprise Resource Planning solution, many small- to medium-sized non-profits find themselves underserved. These smaller non-profits may be using multiple single-point solutions, such as Paypal for payment processing, BidPal for auctions, and Excel spreadsheets in place of a CRM. A significant amount of an individual’s time at this non-profit would then be spent manually inputting donation data into a master Excel spreadsheet. As a result, a strong market appetite grew for one provider to eliminate the multiple vendor challenge and increase operating efficiencies, including the need for one unified data warehouse to manage donations across multiple channels. From FrontStream’s point-of-view, providing multiple solutions to one customer strengthened their customer relationships through more engagement and an increased value proposition. Figure 1 below outlines FrontStream’s services provided to non-profits and corporations to support both individual and institutional giving.
What are the Next Steps?
As FrontStream effectively acts as the digital intermediary between donors (both individuals and institutions) and non-profits, the company has the opportunity to add significantly more value to the entire chain. Through speaking with some of FrontStream’s large corporate customers who use FrontStream’s TRUiST software for employee giving campaigns, it became evident that employee donors would like to better understand where their donations are going and what they are being used for. FrontStream is in the unique position to create an online two-way marketplace where non-profits who have received donations can post pictures or stories of what they have accomplished with donations from a specific campaign. This is likely to influence future giving and is also helpful information for companies to include in their Corporate Social Responsibility reports. FrontStream’s tools are effectively connecting supply with demand, providing better employee engagement and offering valuable data to measure community impact. Furthermore, there is a great opportunity for FrontStream to expand their data and analytics offering to non-profits. As FrontStream is at the center of significant donor data for both collection and use of data to enable fundraising, there could also be an opportunity to proactively consult non-profits on their fundraising strategies to further increase donations and allow these entities to do more good. Better.
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 The Urban Institute National Center for Charitable Statistics
 Blackbaud 2015 Charitable Giving Report
Student comments on Supporting the Good You Do. Online.
Thanks for sharing, Jess. This is an interesting customer segment that FrontStream has chosen to focus on. It seems like FrontStream recognized an underserved market and was able to craft an offering that met the specific needs of small to medium non-profits. I’m curious about what differentiates FrontStream from other CRM and online customer solution providers. I would imagine that FrontStream has a wide variety of competitors providing online sales and customer management solutions. If FrontStream’s success factor was that they got into this market first, is there a large enough moat to keep other competitors from providing a similar or better value proposition to charities?
Very interesting to learn more about digitization in the non-profit sector!
I thought the discussion around data was very interesting. Frontstream meaningfully improves the information flow to nonprofits and provides much more transparency into who is donating and why. On the flipside, as you mentioned, this platform could also improve the transparency for givers into how their donations are being deployed by nonprofits. Although you alluded to givers being able to see pictures or stories of what has been accommplished with prior donations, I imagine this process could become even more quantitative and analytical, showing givers real-time info on how donations are being spent, their strategy and their effectiveness. Do you think Frontstream is well-positioned to to leverage Big Data to help givers make better “investing” decisions in non-profits? What adjustments would Frontstream have to make to its operating model to execute this new value prop to givers?
Very cool company! As someone who manages a small nonprofit and is well versed in the annoyance of paypal + putting everything into excel myself, my first question would be around how this would save me overhead costs. Obviously, if I were paying staff to do these things today, I could calculate savings as a % of that person’s time that I would no longer need or could be re-routed into other value-generating tasks. As it is, I’m mostly concerned with payment processing fees. The PayPal fees are currently just over 2.9% of the donated amount, which is a big drag for me. A key reason I use PayPal is because most of my donors have accounts, which reduces friction in the “customer decision-making journey”. I couldn’t find easy figures on FrontStream’s donation transaction processing fees. Do you have a sense of how they compare to what smaller nonprofits traditionally use? And how does FrontStream overcome the additional friction to donations they would impose over just using PayPal?
Thanks so much!
Great post Jess! I completely agree with you that there is a large market for small – medium non-profits. With a $10M budget at Meals on Wheels, it was often challenging to find robust solutions that were also affordable. We implemented an online giving platform as well as an association management system. The two systems were linked so that we could collect information and giving history of each donor. It is so important for non-profits to have data in order to target giving campaigns or make better decisions. FrontStream is taking a critical area – giving – and making it easier for smaller organizations.
All hail Cersei!
At the risk of being blown up by Wildfire I must say that I am quite wary of donation aggregation capacity being concentrated into the hands of a lesser number of players. One of the most important metrics of the efficacy of a donation is the percentage of it that actually makes it to the final recipient. If you have a very sophisticated collection intermediary I would imagine that it will add substantially to the operating margin that gets cut out of the donation amount. As it is most charitable organizations (especially ones like the Red Cross and UNICEF) have outrageous expense fees which often makes a donation meaningless. Why would you want to add more cost to it?
Additionally I am also of the opinion that though someone like frontstream may allow customer targeting, I do not believe that it will increase the total amount of money that society donates. It may concentrate the donation streams to those bodies that are rich enough and large enough to be able to afford frontstream. What about the smaller charitable organizations that typically operate under the radar?
This is my left leaning two cents.