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Monday, March 22, 2010

Five dollars here, ten dollars there - soon it's real money, Part 2

In my last post I posed the question of what does it cost to donate to a charity using your mobile phone. Then I didn't give you the solution. I know it wasn't very nice to push the answers into a second post, but I didn't want the first one to be too long. And it gave you a chance to calculate an answer for yourself. But I didn't want to hold out too long, so here's the second post with the answers.

NOTE: I'm happy to highlight two major contributions that the mobile phone carriers have made regarding Haiti earthquake relief donations. The 90-day holding period is set aside temporarily, so the funds can arrive sooner, and messaging charges are being refunded (or not imposed) on donors. These are excellent developments.

Here are my results:

One-Time Fees are $500
Monthly Fees of $1000 must be paid for at least 12 months, so  = $12,000
Outgoing promo campaign fees are 3.5¢ per message x 100,000 = $3500
Transaction Fees on $5 are ( .035 x $5 ) = 17.5¢ + 32¢ = 49.5¢ x 5000 = $2475
Transaction Fees on $10 are ( .035 x $10 ) = 35¢ + 32¢ = 67¢ x 5000 = $3350
Message Updates 5000 x 4 messages/month x 6 months = 5000 x 4 x 6 x 3.5¢ = $4200

Sub-Total $500 + $12,000 + $3500 + $2475 + $3350 + $4200 = $26,025 in fees

5000 x $5 = $25,000  and  5000 x $10 = $50,000 for a Gross Income of $75,000

$75,000 - $26,025 = $48,975

26025 ÷ 75,000 = 0.347 or 35%

The cost to the donor is $5 or $10 plus at least 5 text messages. Here's how it works: 
1. Donor texts the donation word to the donation number.
2. Donor receives a text back asking for confirmation; done by replying with YES.
3. Donor sends YES. Donors cannot cancel after sending this YES.
4. Donor receives text that the donation was successful. 
5. Donor receives text asking for another YES if they want updates from the charity. If this message is ignored, everything stops here.
6. Donor replies with YES for text updates. 
7. Donor receives up to 4 messages a month from the charity.
8. Donor may send a message at any time saying STOP. The charity must respond.
9. Charity's final message says "We got your instruction to STOP".

In our calculations, let's assume a user just gets the first 5 messages, and pays $1 for them in total. By this pricing assumption we will under-estimate the costs incurred by the half who want updates (10 or more messages), and over-estimate the cost to those who have a all-inclusive messaging plan. But this is enough detail for us today.

Now we see that the real cost to our donor is $11. The charity receives the same NET INCOME amount no matter what a donor pays for messaging. We can create a new formula that includes the messaging costs in our gross fees and income. That changes the percentage of the total that goes to fees.
10,000 x $1 = $10,000

36025 ÷ 85,000 = 0.424 or 42%

NOTE: Every calculation of this type is an approximation. The set-up fee is actually $399 but I rounded it to $500. We know that we assumed half the donors want text message updates but later made another assumption that they didn't (in order to accommodate an unknown number who may have free messaging).  Regardless of the amount of fees paid and to whom, this probably represents a large new chunk of income to the charity - some of which is used for its internal operations (
marketing or legal or accounting costs) and doesn't go directly to the intended relief effort. Could you do better by slipping a $10 bill into the mail? That's another question!

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