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Anatomy of an Internet Charity

Anatomy of an Internet Charity

This is an attempt to explain about SOS Children UK in terms of our accounts and how things work in practice

Update Feb 2011: LE 2010 income is £9.25m, considerably above the number used in the graph.

This year SOS Children UK expect to receive a total of about £7.5m to £8m income in the form of donations, having reached just under £5m in the first half year (H1). This result and the graph looks good (especially the trend) but the reality is actually better (see below). And that is without chuggers, junk mail, doorstep fundraising, cold telephone calling, TV or print adverts or indeed spam.

We get quite of lot of curious requests from other charities about how SOS Children UK are organised and how we achieve our low cost fundraising results. We have had a series of meetings trying to help other charities take a similar approach. Since we have just had our triennial (if that means once every three years?) strategy review, all the figures are to hand. After a little thought we have decided to explain the results clearly to a wider audience. This will probably interest other charities more than our donors. However, being a charity is about making the world a better place and in the end we think lone children have more to gain if the whole charitable sector raises its game. The numbers on the slide are precise from audited accounts (in case you wondered, there was a tsunami in the 2005 results..).The numbers in the text are unaudited and rounded from our management accounts, but intended to give a true picture.

A large part of the story is that online fundraising is much lower cost than traditional methods and much more ethical. People surf our website when they are ready and interested to read about our work. We are not pushing at the boundaries of their privacy giving them messages they do not want. That is also partly why we have a much lower cancelation rate than some other charities. We wised up to this in 2005 and since have been focusing very much on the internet. Other aspects of the story include having very good projects to sell, having very good fundraising staff to follow up interest and also having very good quality volunteers.

Charity Income and "Value" gain

This year we will get around £70,000 in new monthly Direct Debit sign ups online. Every year the number of new sign ups increases by about 30%. On average each month well under one percent of our existing direct debits are cancelled or end for other reasons (sponsors passing away etc.), and on average Direct Debits last well over a hundred payments (well over 8.5 years). We will end the year with around £600,000 more "committed giving" annual income than we started with in January and in terms of future income we estimate this a "gain in value" from fundraising of about an additional £3.5m to £4m. In terms of what our fundraising pays for this should be added on top of the graph in the figure.

Altogether that gives around £11.5m in "gain" from fundraising activity in 2010, of which all bar about £0.9m will end up directly helping the cause. Of the £11.5m around £1.3m is from our Haiti Earthquake appeal, including £1m kindly given by HSBC. We did not spend money on fundraising or make UK deductions from this emergency appeal so you can exclude it from the below analysis if you wish. We plan to be cost efficient in years without humanitarian disasters.

In terms of where it all comes from, the "gain in value" part pretty much all came online. As we have grown, our Direct Debit and standing order income from individuals has stayed between about 30% and 40% of income. Overall about 20% of our income comes from corporates and larger individual donations. HSBC educational trust and the International Friendship Centres contributed 15% and the remaining 25% will be one off donations, schools, charity events, legacies and so on. Not an unusual mix for a charity but compared to others without government funding and more than average corporate support.

Money spent on direct fundraising

Of the twenty (including part time) paid employees in our UK office, seven are working on conventional fundraising. They are our fundraising director, Meryl; Caroline who deals with companies who wish to raise funds for us (who often require specific projects funded by them and help with engaging their own teams on fundraising and team building projects), Mary works on community fundraising (giving talks to supporters groups, Rotary clubs and so on), Sarah works with individual donors, when they want some specific projects to give to or help with events, Natasha raises funds from trusts and foundations, who often require quite detailed information and forms. We are in the process of recruiting someone to help with university supporters groups. Helen does some fundraising and coordinating volunteers but her main role is development education in schools. Including both part time team members and the vacancy that makes a fundraising team of seven. Most of the direct fundraising costs are the salaries of this team and providing office space and support for them. We do not spent any significant sums on advertising campaigns and do not send cold direct mail, phone people at home, approach people on the street to sign up Direct Debits, pay for magazine adverts, TV adverts or any other cost items of a similar type. We used to use cold Direct Mail, we stopped in April 2004 (since when our income has risen five fold, see chart). We send subscribed supporters two editions of a printed magazine a year and a couple of short updates about Christmas cards etc. Many of our supporters are kept in touch by our bi-monthly emails. Our total direct fundraising costs are therefore roughly £300k, or 2.7% of the total value raised.

Charitable activity in the UK

At the other end of the spectrum we spend around £150,000 a year in the UK on charitable activities. This includes project supervision (Kathie mainly does that), special education projects like the Schools Wikipedia (which is mainly volunteer based but has some technical costs), "our Africa" which is an education project helping our children in Africa celebrate their heritage, printed development education materials for schools and some of Helen's time (mentioned above).  The Schools Wikipedia project we are particularly proud of: we guestimate 3-5 million children have child safe access to checked content form Wikipedia as a result. Anyway in rough terms that is 1.4% of £11m raised.

Our internet costs

These days we spend about £250k a year on producing news, internet content, internet adverts and technical website costs. That pays for three people in the office, the equivalent of two full time technical contractors externally, hosting, licence costs and some third party news writers. We started in 2005 spending far less than this on the internet (our 2006 content management system cost £4k all in) but the website is important to provide information about our work to existing as well as future donors and income coming directly from our internet presence is considerable.  Even marginal improvement pays for getting stuff right, and we keep improving on the technical side: for example if you take out an online sponsorship by credit card we have a fully automated interface with the credit card companies which means we do not see or store your credit card number at all and we take the security of our online transactions very seriously. £70,000 a month in new income each year from the website is worth £6-7m to our children, aside one off cash donations, and in total the internet cost is about 2.2% of the annual income and value growth. About £75k of our internet cost is in online advertising. 

Our internet strategy remains "spending behind the curve". We do not spend on the internet in anticipation of income (it is too inviting to invest heavily the wrong way), we started really low cost and invest more as our income grows. We suggest this strategy to others because the risks of spending hugely on the wrong things is just too big if you try to go to fast.

Other UK costs

The remaining £300k costs of our office (bringing the total to about 10% of £11.5m mentioned, or 9% of non charitable costs) are marketing, administration, and management costs. That includes running a database system to ensure we know our donors contact history and treat them with respect, running our child sponsorship programme, our CEO, Finance Managers and Marketing Managers salaries, office costs for administrative staff, audit and control costs, payroll costs, branding and so on.

We receive unrestricted donations well in excess of our non-charitable spend and therefore are able to offer sponsorships and emergency appeals on a "no UK deductions" basis.

What it takes

Why do we succeed and grow as a charity with this structure, when other approaches have been historically much harder for us? Well, the internet suits us because (as you will know if you have read this far) it is not a "sound bite" medium. The days past are over, when charities were all about donors responding to an emotive photo without a clue where their money went. The more the credit crunch tightens, the more online pages people read before giving, but in the end the average amount they give goes up, since they end up convinced. People choose the details they care about when finding out more about you. By contrast when the big mailing house and advertising charities find people are getting turned off, being more intrusive seems like the only way they can go; one could hardly mailshot the five thousand pages of info on our website.

SOS Children has a very good, full and interesting story to tell from all around the world. Online everyone can see exactly what we are, and what we spend our money on. Other charities who have relied on appearing very "politically correct" for government funding are failing present themselves as "practical and useful" online to individual donors. No corporate donor or individual thinks that teaching a starving child they have a right to food is more important that actually ensuring they are fed, even though that may be what it takes to tick boxes for government funding. We focus on companies and individuals, where doing the obviously sensible thing counts.

We think the biggest threat to our growth is that with the advent of small screens on Ipads and mobile phones donors will go back to responding to an emotional picture without really looking at what charities do. Anyone got any ideas to help with that?

Andrew Cates, CEO SOS Children UK