Monday, April 14, 2014

Self Made vs Service Provider: Crowdfunding Sites

We, my wife Arleta and myself James, are running a campaign to raise the money for the down payment on our new home.

While we appreciate the efforts of the many that are doing all that they can, I James, felt it necessary I explain why we chose to attempt to run the campaign ourselves with our own website instead of using any of the established service providers such as GoFundMe or the like.

The primary reason was that after a “lot” and I mean a lot of research into the website service providers that exist out there, I could not rationalize the wealth the owners of such sites have, all through the process of “helping other people”.  Yes there is expense in the process, but looking into it, and also having run businesses of my own, especially mostly online businesses, I knew that their cost were far lower than the cost they were charging for their services.

I am not trying to say that I do not believe they should not make a profit, but as with all such things I look at the profit that they make, and try to justify that profit to the service they are providing.  What risk and interest do they have in the process, that is what should determine their profit.  In my research they did not perform the work that warranted the profits they received on what is presented as philanthropic operation.  They present their service as helping people raise money for what is mostly charitable projects.

Of course there are services out there that thanks to new laws now allow unqualified investors to invest in risky businesses.  This makes good sense to me, and the percentage that the service takes on this is a profit made on a for profit campaign.  There still is very low risk to the service providers, but at least it is for profit campaign, so their profit is almost justified.  This is of course my opinion, and I am sure others disagree.

Why I chose to try to do this on my own is that although not as slick as the service providers, the cost to us, and therefore to the donors is much less.  While many of the service providers do not charge the donors, by how much they charge to the people who are asking for donations, they are by proxy charging the donors as their donations have less value towards their campaign.  With cost on the donation of up to 9% (and sometimes more) plus the cost of processing (PayPal charges their transaction fee of 2.9%), on average the donee receives only 87.1% of the donors actual donation.  When calculating cost that the service provider has in the process, that means that of the 9% they charge, on average they take almost 5-6% in profit for every donation they process.  So while the websites they provide are much slicker and have some really neat API programming involved, they are almost all based on templates and the same scripting, so really only the first few cost that much.  The rest is all passing the donation through to the payment processor, and then taking their cut.

While as I said in the case of a for profit project like a movie, or for a small business concept (such as a mobile game), it is more acceptable, it would seem since when I did some background research on the owners of these sites, and they all were usually multi-millionaires at the very least, you would think they would be really philanthropic and drop the percentage on the charitable campaigns to what is essentially the real cost of the service they really provide.

Please understand that I do not begrudge them their profit, it is that I feel that they are earning that profit at the expense of those that need their service for charitable reasons.  It would seem that since they really do not need more money, did I just say that out loud, they could maybe consider that they might only charge those little kids that need money for cancer treatment, or families that need money because their house burned down, only what it really cost to provide that service, not earn ridiculous profit off their campaigns.

Okay, so I think I have made my point here; so why did I decide that when we needed help raising the money for our down payment on our home, the home we are living in is not only falling in on itself, but also has been foreclosed on and we must move, I did not feel the people who contributed to our campaign (the donors) should be making someone who already has ridiculous amounts of money even more money, and not giving them the value for their efforts.

While our site is not nearly as slick as the sites that specialize in this, and I will give them that, they certainly have a slick interface, it is a far better value to the people who contribute to our cause.  I work on this site, as I have not got the staff to do this for me, but I have tried to provide what is needed and provide as much value to our contributors as possible.  We use PayPal as our payment processor, mostly because that is about the only way that we can provide the security and service that will ensure that our donors are protected, and we will have access to the money in a method that allows us to use it when we need it for the down payment in an affordable manner.

So I guess what I am trying to say here is that we considered the service providers, and they most likely are more successful, but we are hoping that like our lifestyle, by doing it ourselves we provide our friends with the best value for their contribution.

Like everything else we do, if we can we will always do it ourselves, not just to save money, but because we have done it ourselves, with the generous assistance of our friends, and not a third party service provider who really only provided a more slick interface.

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