Donation Processing Fees: How to Compare the Real Cost

The expense that never sends an invoice

This is the last post in our series on reviewing nonprofit spending. We covered survey tools and email newsletter tools, which both show up as a monthly bill. Payment processing fees are different. They are taken out of each donation before the money reaches your bank account, so they rarely appear as a line anyone reviews.

Plenty of vendors advertise free donation processing. Some really are free to your organization. Others are free to sign up, then charge fees on every gift. The only way to know is to add up every fee between the donor's card and your bank account.

Two layers, four numbers

An online donation usually passes through two companies, and each one can charge you.

• The donation platform provides the donation form, donor records, or receipting. It may charge a platform fee made up of a percentage of the gift, a fixed amount per transaction, or both.

• The payment processor actually moves the money from the donor's card. It also charges a percentage plus a fixed amount per transaction. Stripe's standard published rate for domestic cards in Canada, for example, is 2.9% plus 30 cents per successful transaction, with extra charges for international cards and currency conversion.

So a single donation can carry four separate charges: the platform's percentage, the platform's fixed fee, the processor's percentage, and the processor's fixed fee. A vendor's pricing page may only show the first two, with the processor's fees mentioned in small print.

What stacked fees look like on real gifts

Here is an illustrative example. Imagine a platform that charges 2.5% plus 25 cents per donation, on top of a processor charging 2.9% plus 30 cents. These are example numbers, not any specific vendor's pricing.

• On a $20 donation: $0.75 platform fee plus $0.88 processing fee equals $1.63, or about 8.2% of the gift.

• On a $50 donation: $1.50 platform fee plus $1.75 processing fee equals $3.25, or 6.5% of the gift.

• On a $200 donation: $5.25 platform fee plus $6.10 processing fee equals $11.35, or about 5.7% of the gift.

Notice that the smallest gift loses the largest share. The fixed fees stay the same no matter how small the donation is. For a family centre where many supporters give $10 or $20 at a time, fixed fees matter more than the headline percentage.

Now scale it up. Say your organization receives 400 online donations a year averaging $40, for $16,000 in total. With the stacked fees above, you would pay about $1,084 in fees. With the processor's fees alone, you would pay about $584. The platform fee alone costs $500 a year, which is more than many organizations pay for an annual software subscription.

Free, subscription, or tip-funded

Donation vendors tend to follow one of three pricing models. Using the same 400 donations averaging $40:

• Free to join, fee per gift: no monthly cost, but a platform fee on every donation plus processing. In our example, about $1,084 a year.

• Monthly subscription, processing only: a fixed monthly fee with no platform percentage. At an illustrative $25 a month, that is $300 plus $584 in processing, about $884 a year. This model gets relatively cheaper as donation volume grows.

• Tip-funded: no fees charged to your organization, sometimes including processing. The platform earns revenue by asking donors for an optional contribution at checkout. Your organization keeps more of each gift, but check whether the tip is preselected, how clearly donors can set it to zero, and how it appears on their receipt.

No model is always best. The right choice depends on how many donations you receive, your typical gift size, and whether you also need the platform for event tickets, memberships, or program fees, which are often charged at different rates.

Questions to ask every donation vendor

1. 1

   What is your platform fee, as both a percentage and a fixed amount per transaction?

2. 2

   Are payment processor fees included, or charged separately on top?

3. 3

   Do fees differ for donations, event tickets, memberships, or recurring gifts?

4. 4

   Are there extra charges for international cards, currency conversion, or manually entered cards?

5. 5

   What happens to fees when we refund a donation, and is there a charge for disputes or chargebacks?

6. 6

   Is there a monthly fee, and does it lower the per-transaction fee?

7. 7

   If donors can cover fees or add a tip, is that option preselected?

8. 8

   How quickly are funds deposited, and are there payout fees?

Then run the numbers on your own donation history, not the vendor's example. Pull last year's online donations, count them, find the average gift, and calculate what each option would have cost.

Fees, receipts, and your records

Only registered charities can issue official donation receipts for income tax purposes, and those rules are set federally by the Canada Revenue Agency. Nonprofits that are not registered charities cannot issue tax receipts, although they can still thank donors and provide a record of payment. Our guide to donation receipts for community organizations covers the basics.

Processing fees also complicate bookkeeping. If a $50 gift arrives in your bank account as $46.75, someone needs to record the full gift and the fee separately, and make sure the donor record and any receipt reflect the right amount. When fees are taken by two different companies, reconciling deposits takes longer. Ask your accountant how to record fees, and how donor-covered fees should be treated on receipts.

If you use OpenCommunity to record donations and issue tax receipts, the same questions apply to the payment processor behind any card transaction. For in-person giving at events, see how to accept donations at a community event.