How does Zeffy make money?

Voluntary contributions: how they work, why we don’t call it tipping and why it makes sense for nonprofits.

To really understand Zeffy’s Voluntary Contribution model we’ve got to talk a little about why, as humans, we tip, why we donate to charity and the importance of giving to others. But, as a bit of a TL;DR, here’s how Zeffy affords to pay the bills:

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The kind of long for a TL;DR, TL;DR:

Nonprofits already struggle with overhead and the unfair expectations from donors to keep it unsustainably low. We don’t want to add to that.

What percentage of donations go “directly towards the cause”? Why doesn’t everyone work from home? Why do employees need to be paid? Nonprofits are constantly being questioned about how they spend the money they’re given, even though their overhead includes the same costs as any other business. The only real difference: a nonprofit is likely to be judged on how little they invest in overhead and not on how much they accomplish.

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To offer our services for free (we even cover transaction fees), we had to break the mould and think of another way to fund our platform.

While other platforms charge 3 to 10% fees on every transaction, Zeffy charges nothing. Zero. Nada. And we never will. That means nonprofits get to keep every dollar donated to them.

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So, how does Zeffy make money?

We decided to break the mould and offer nonprofits a 100% donor-funded platform. Sceptical? A lot of people are. So, we’re transparent too. We don’t have any hidden fees, third party transaction fees, or upgrade fees. Nothing. How? Voluntary contributions that are just that, voluntary.

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How do voluntary contributions work?

At the payment confirmation step, donors have the option (but are never obliged) to contribute to Zeffy. This is our only source of revenue and allows us to cover all of the fees (including credit card transaction fees) for the 10,000+ nonprofits that fundraise with Zeffy.

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Is Zeffy’s voluntary contribution model sustainable? Profitable?

So far, around 60% of donors give an additional voluntary contribution. And, when they do give, they give an average of 4%. Some months, that’s almost enough to cover our costs, other months it’s more than enough. Either way, collectively we make it work for everyone.

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Why we tip and why it’s important for nonprofits using Zeffy.

Tipping is not a world-wide phenomenon. It’s not even universally accepted as a good idea here in North America. So, why did Zeffy opt for its voluntary contribution model? Well, our voluntary contribution model means nonprofits keep every dollar you give them. And, it’s not technically tipping.

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Why Zeffy doesn’t ask nonprofits to pay platform or transaction fees.

Giving feels good and makes us happy, but that doesn’t mean we need to blindly give. It’s important to make sure our generosity has an impact.

Unfortunately, even when we do give to charity, the money doesn't always reach those who need it. Technology is helping to change that by making sure more of our charitable donations end up where they will be most effective. Zeffy’s voluntary contribution model has one simple purpose: give nonprofits access to the technology they need while ensuring they keep 100% of the donations that are given to them.⁸

Our voluntary contribution model also encourages transparency. We’re upfront about our business model and encourage the organizations that use our platform to share it with as many people as possible. We’ve all be told since childhood that nothing is free, so it understandably takes some convincing (and a lot of transparency) to convince people that Zeffy doesn’t believe in hidden fees. We don’t have premium plans. And we don’t pass along third party transaction fees. We cover 100% of everything.

We also believe in being there for each other. Our voluntary contribution model gives small to medium sized nonprofits access to the online fundraising technology and services they need and, until Zeffy, might not have been able to afford.

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Is Zeffy’s Voluntary Contribution model good for nonprofits?

We made Zeffy free because we wanted to lead by example. To break the mould. Yes, relying entirely on the generosity of donors means we make less money. But, it also means we can relate to the organizations that use Zeffy and, most importantly, it means we can help millions of nonprofits accomplish their mission.

So, yes. Zeffy’s voluntary contribution model works thanks to the donors, organizations, and Zeffyites that make it work.

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Okay, so why do voluntary contributions work?

Why are we so adamant that voluntary contributions aren’t tips? Well, tipping doesn’t have a great history and isn’t even a thing in most parts of the world. It most instances it’s used to supplement an unreasonably low hourly wage. It allows the tipper to control how much someone earns for their work. And, it has kind of lost all meaning.

Let’s get into some details.

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Tipping doesn’t have a great history.

Tipping began in Europe in the 17th century but, as workers’ rights improved, it naturally just kind of faded away.¹ Today, people typically only tip a Euro or two (if at all). And, Europe isn’t alone.

In Australia, tipping is not expected and in Japan, tipping can come off as offensive. But, in Canada and the United States, tipping is still the norm because of how we pay tipped workers.¹

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Tipping is used to supplement an unreasonably low hourly wage.

In the US, most states adhere to the Fair Labor Standards Act (FLSA) from 1938. The FLSA allows employers to use tips “as a credit against the minimum wage”. So, instead of paying  workers the minimum wage of $7.25, employers can pay them as low as $2.13 in cash, and issue a maximum “tip credit” of $5.12. If the employee does not receive enough tips to earn minimum wage, the employer is obliged to make up for the difference.¹ (But who actually calculates that.)

In Canada, most provinces have eliminated the adjusted wages for tipped employees. However, in Quebec, the minimum wage is $14.25 and the tipped minimum wage is $11.40.²‍

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How much someone earns shouldn’t be decided by the customer.

“In a tipping world, our guests are deciding how much our front-of-house team members are being compensated.”³
- Erin Moran, chief culture officer at Union Square Hospitality Group (USHG)

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Tipping represents everything but a reward for good service.

These days, tipping isn’t really seen as a thank you for great service, it has become an obligation in places where we're having a lot more fun than the people serving us: bars, restaurants, cruise ships.^1,4 So, if it’s not about good service, why do people tip?⁵‍

1. We like to show off.
2. We like to be there for each other.
3. To make sure we get the same service next time.
4. To avoid being thought of badly.
5. Out of a sense of duty.⁴

"It's quite possible that tipping norms undermine overall satisfaction or happiness. The social pressures people feel to give up money they would rather keep, for them tipping is a net loss. And it's very possible that that net loss exceed the benefits."⁵
- Professor Michael Lynn

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Zeffy’s voluntary contribution model is different.

Psycholically speaking, voluntary contributions are similar to tipping. Donors choose to leave a voluntary contribution to ensure Zeffy is there (and free) next time. AKA: we all like to be there for each other.

But, when we break it down, there just aren’t that many similarities between leaving a tip and giving a voluntary contribution. First, and most importantly, our voluntary contribution model is optional, not an obligation. Our team members aren’t paid more or less depending on the contribution we receive. The quality of our service doesn’t change if a donor decides to skip the voluntary contribution. And we will always be free for the nonprofit organizations that use our platform—whether there donors give a voluntary contribution or not.

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Spending money on ourselves versus someone else. Or, why we donate to charity.

The psychology behind why we give reinforces Zeffy’s voluntary contribution model even more.

"When we tell people, ‘Hey, did you know that giving to other people can make you happy?’ most people are not blown away,” Michael Norton, professor of business administration at Harvard Business School, told Big Think. “They understand. They’ve had [charitable] experiences that make them happy.”⁶

You read that right, giving makes us happy.

Spending on ourselves produces a kind happiness that fades away over time. But, that warm, fuzzy feeling you get when you spend money on someone else? That one sticks around. And, it doesn’t matter how much money you spend, what really matters is that you spend it on somebody else rather than on yourself.⁷

So, our voluntary contribution model breaks the mould by structuring our business around the idea of giving. We give away our services and donors give a voluntary contribution to help cover the costs. We’ve accepted that we might not be as profitable as other companies offering similar servies and we’re okay with that. We know that, collectively, we will earn enough voluntary contributions to keep our fundraising platform free for nonprofits that uses it and we’ll feel good doing it.