The Science Behind Adaptive Cost Coverage

Oct 25, 2022
Nicolas Miller
Head of Product Experience

Should you ask donors to cover the transaction fees for their donations? The question has stuck to the nonprofit industry like glue for decades. The answer is yes…but there’s also a catch.

Some donors are more likely to cover transaction costs than others. And in some cases, asking actually lowers your chance of securing certain donations. So what’s the right way to do it?

The answer is adaptive cost coverage, a feature we’ve introduced that uses artificial intelligence to determine which donors you should ask to cover transaction fees.

Read on to see why we integrated AI technology into adaptive cost coverage and the results the feature is delivering for nonprofits.

Researching fee coverage dynamics

When we first tackled the covering fees dilemma in the fall of 2021, we found that a majority—92% of donors—would cover the fees associated with processing their donations.

We also found that if a donor covered the fees on their first donation, there was a 26% chance that they’d do it again in the future.

And for organizations that pre-checked the covering fees option for donors, there was a 12% increase in the number of donors who would cover fees on future donations.

43% of donors would even tick the box for covering fees if it wasn’t checked by default.

But beneath the top-level stats was a layer of nuance that revealed personas that didn’t respond as positively to fee covering prompts.

For example, donors who gave between $500 and $1,000 were 18% less likely to cover fees than donors giving downrange gifts of $60-$120. This behavior was present with both one-time and recurring donations.

The apparent solution would be to write some logic that hides the option to cover fees based on donation size, but the behavioral nuances extend beyond what simple conditional arguments can solve.

Understanding human behavior

Our decisions are influenced by our environment and by the world at large. Enough so that events like Russia’s invasion of Ukraine alter the way we give.

Understanding the relationship between environment and behavior is important because it reveals that one-size-fits-all methodologies never really work, especially at scale.

Actually, there’s one way that a one-size-fits-all approach could work.

Let’s say that you replaced every person on the planet with clones of yourself and held a family reunion in California. You and your 7.6 billion copies could cram into a 470 million cubic meter box and float around San Francisco Bay.

This would be ideal because you and your billions-strong cohort all think the same way and are all in the same place at the same time.

So if I can figure out just one of you, I have figured out all of you. And if one of you will cover the fees on a donation, all of you will.

But since none of this is possible, it’s impossible to know in any moment the factors that are influencing people’s decisions. But we can make incredibly well-educated guesses with some help from machines.

Optimizing around the individual

You can’t humanly calculate the optimal giving experience for all of your donors in your lifetime, let alone on the fly. But machines can.

This is where artificial intelligence enters the picture. You can task an AI with answering a question like, “how much should Donor X give?” and given enough data, that AI will provide a logical answer.

The principle applies at scale, too, which means you can gather a lot of actionable insights about your donors within a short timespan. The trick is completing this exercise over and over again very quickly.

Again, machines can help. If you leave an AI to answer your questions automatically, it will dutifully carry out the task around the clock. This is the only way to meaningfully optimize anything around an individual in real-time.

And remember, one size does not fit all, so even if one $5K donor convers the transaction fees for their donation, it doesn’t mean that subsequent $5K donors will also cover the fees.

Properties like time of day, location, proximity to a payday, cell phone carrier and even mouse cursor movements are all factors in whether the fees get covered on a donor’s gift.

Implementing AI for fee coverage

With adaptive cost coverage feature, you’re harnessing AI to observe over 100 properties that orbit every potential donor. This exercise in observation occurs nonstop to account for moment-to-moment behavioral changes.

The result is that you get a very good idea of who should be asked to cover transaction fees.

One of our hallmark statistics over the years has been that on average, 92% of donors cover fees. Admittedly, that number is likely to drop as nonprofits begin switching over to adaptive cost coverage. But this is okay.

The reason? You’re now optimizing for conversion instead of broader fee coverage. You might see fewer donors covering transaction fees, but you are likely to see more giving and larger donation sizes.

Already, early results indicate a 5% conversion increase when adaptive cost coverage is enabled and a roughly 4% elevation in revenue throughout. This is a big win for you and for us.

Our core objective in partnering with you will always be optimizing conversion. Because the easier it is for someone to extend their generosity toward your mission, the closer you get to fulfilling it.

About Fundraise Up

Fundraise Up is a technology company unlocking the world’s generosity potential by optimizing how people give. Our donation platform helps nonprofits engage more supporters and grow revenue by providing easy ways to increase conversion, enable modern payment methods, and personalize the giving experience for every donor. Fundraise Up is the partner of choice for UNICEF USA, The Salvation Army UK, American Heart Association, and other impactful organizations across the globe.

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