You know the story. You care deeply about a mission, and you find others who share your passion. Together, you raise money, advocate, and make an impact. But as you grow, something unexpected happens—fees and technology costs start eating away at your donations. The reality? Hidden fees may be costing your nonprofit more than you think.
At CharityEngine, we share our knowledge and drill down into the details nonprofits need to know to make informed decisions.
One of the most pressing issues right now? The hidden costs buried in payment processing and nonprofit technology stacks. These costs can significantly reduce the donations you receive, especially when it comes to sustaining revenue from monthly giving programs.
In this article, we will shine a light on these fees and give you practical guidance on identifying and minimizing them so you can retain as much revenue as possible.
The Real Cost of Hidden Fees
When a nonprofit builds a technology stack, it’s easy to pull together programs that give you what you need. We see it all the time. There’s a CRM (sometimes an expensive one that most people can’t fully leverage), and then there’s a system like Mailchimp for emails. You might add Eventbrite for a ticketed event and Constant Contact for email marketing. And then you could tack on Classy or Stripe for payment processing.
The result? A fragmented system that complicates donor management and introduces hidden costs that quickly add up.
Two primary areas nonprofits may lose money due to hidden fees are software licensing and payment processing.
Hidden Software Costs
- Licensing fees that scale up with your growth: Every one of those platforms has licensing fees. Most are designed to increase as your nonprofit grows – the more contacts, emails, events, and payments you run through them, the higher the cost. Even very small organizations often pay up to $10,000 yearly for software licensing.
- “Free” software that isn’t really free: If you buy software that’s free, ask what free really means. Sometimes it’s limited functionality, sometimes it’s fees you’ll have to push to donors or pay yourself. It’s never really free.
- Dynamic pricing traps: Ask if the pricing is static or dynamic. Often, small nonprofits will start with a system that offers a reasonable cost for their contacts and usage. As their nonprofit grows, the cost skyrockets, and they find their fundraising dollars diminishing because of software costs. We recently ran an analysis for a medium-sized nonprofit spending almost $40,000 on hidden software fees.
Hidden Fees in Payment Processing
A major way nonprofits lose money is through payment processing fees. These fees, often layered and complex, can significantly eat into your revenue—especially when it comes to monthly giving programs.
- Some of these systems charge fees that are hard to find.
- Classy, for example, charges a 4% transaction fee, a 2.2% platform fee, and a potential payment processing fee up to 3.2%.
- Stripe charges 2.9% plus a $.30 successful card charge. However, recurring payments incur an additional 0.5% fee per recurring transaction. These fees aren’t easy to find, and they add up fast!
- If a payment processor offers a reasonable cost, ask how you get that rate. The best rates often assume your donors will elect to cover the payment processing fees.
- Understand your effective rate, which is the actual percentage your nonprofit pays in fees. It lets you compare vendors apples to apples and helps you avoid unnecessary fees.
- Some vendors, like Stripe, advertise low nonprofit rates, but you must apply and get approved. Make sure the low rate is transparent and accessible.
- PCI non-compliance fees can quietly eat into your funds. If your nonprofit doesn’t meet Payment Card Industry (PCI) security standards, your processor may charge you a monthly or annual fee—often $20 to $50 per month. Some vendors offer assistance with PCI compliance, while others may leave you to navigate it alone.
- The fees for chargebacks, card updates, and fraud protection will vary. Ask about these fees.
Can you avoid all hidden fees?
You can come pretty close. The more educated you are about where they hide, the more questions you can ask. And in our experience, most vendors will tell you the truth when asked a direct question.
A Silent Threat to Monthly Giving
One of the biggest areas in which nonprofits lose money due to hidden fees is their monthly giving programs. This is a serious issue because recurring donations provide financial stability and higher donor lifetime value (LTV).
Yet, nonprofits lose up to 30% of recurring donations due to payment failures, expired credit cards, and processing fees.
Why Monthly Giving Is So Valuable
- Monthly donors provide predictable revenue, reducing the impact of economic fluctuations.
- Subscription-based giving aligns with how consumers interact with digital payments today.
- Donors who give monthly tend to stay engaged longer than one-time donors.
The problem? Many nonprofits don’t have the right technology to keep monthly donors engaged and ensure payments go through. That’s why we developed SustainerIQ, a subscription billing technology that helps nonprofits recover at least 90% of recurring donations that would otherwise be lost. With our new Zapier connection, any nonprofit can now access this technology and immediately start saving money.
How a Disconnected Tech Stack Can Cost You
Beyond financial losses, using multiple disconnected tools can also hurt the donor experience and create inefficiencies within your organization.
How a Fragmented Tech Stack Impacts Your Nonprofit
- Data lives in multiple systems. This means manual syncing, missing donor records, and inconsistent engagement data.
- Delayed donor communication. If a major donor gives a large gift but the payment processor doesn’t sync immediately, you may miss the opportunity to thank them promptly.
- Mismatched records and donor confusion. A donor may receive tax receipts that don’t match their actual contributions, leading to frustration and distrust.
- Time wasted on troubleshooting. Staff members must manage multiple logins, chase down transaction issues, and reconcile reports across different platforms.
A unified system eliminates these problems by providing real-time, centralized data that ensures smooth donor engagement, accurate reporting, and reduced administrative burden.
How to Avoid Fees and Keep More of Your Donations
The good news? You can minimize hidden fees and maximize your revenue by strategically choosing your tech stack and payment processing solutions.
Actionable Steps to Reduce Hidden Fees
- Audit your current systems. Review every software and payment platform your nonprofit uses. Identify licensing fees, processing charges, and hidden costs.
- Negotiate better payment processing rates. Many vendors offer nonprofit discounts, but only if you ask.
- Consolidate your tech stack. Using an all-in-one system reduces the need for multiple software licenses and minimizes manual data entry.
- Invest in automation for monthly giving. Tools like SustainerIQ can help recover lost revenue from declined payments.
- Ask vendors the hard questions. Before signing any contract, request full transparency on all potential costs, including upgrade fees, transaction fees, and hidden charges.
Maximize Your Nonprofit’s Revenue with Smarter Technology Choices
Hidden fees don’t just cost you money; they impact donor trust, staff efficiency, and long-term sustainability. While no single system is perfect for every nonprofit, choosing the right tools can significantly affect your fundraising success.
At CharityEngine, we believe in transparent pricing and all-in-one solutions that help nonprofits avoid unnecessary fees and retain more of their donations. If you’re ready to take control of your nonprofit’s revenue and eliminate hidden costs, it might be time to explore an integrated approach.
Want to learn more? Let’s start the conversation.