membership-vs-donation

Memberships vs Donations: Which Is the Best For Your Organization?

avatar-image
Paul

There are many factors that go into determining whether your organization should pursue members or donors as a means to garner support and ultimately mold how your organization interacts with its advocates. Charities certainly have the opportunity to gain funds on either front, and whatever membership rules for nonprofit organizations they choose to adopt should be aimed at building a community of support around their mission so they can continue doing the great work that they do. For non-charitable organizations, the story is a little different. 

While most organizations can opt to exercise the benefits of both memberships and donations, each of these modalities bears its own unique assets, and indeed drawbacks, which usually tip the scale. The best way to determine which model is right for your organization is to look at the pros and cons of each.

In this article, we will cover:

Let’s go!

No time to read this article now? Download it for later.

membership-vs-donation-what-is-membership

What Is a Membership?

Membership can take on many meanings. In general, it is a special type of relationship between your organization and a contributor who subscribes to it, usually by way of a monthly or yearly fee, and who receives certain privileges as a result. These privileges often include administrative abilities, or the capacity to vote on inner-organizational bylaws. They at the very least ensure members feel intimately tied to your organization, and sometimes make them integral to the matriculation of your organization’s success and well-being. 

The fees members typically pay provide sustainable funding for ongoing operations and activities, which is essential to some organizations that rely on recurring revenue streams, like social enterprises or nonprofit organizations.

Some organizations are primarily membership-based. Here are a few examples:

  • Professional associations (like financial associations, arts associations, environmental  associations, and beyond)

  • Unions

  • Book clubs

  • Sports clubs (for example, a local baseball league)

  • Country clubs

The benefits members of organizations receive vary for many different reasons; firstly, the type of organization they are subscribing to holds a significant amount of weight. For instance, most professional associations are only composed of members, and all members have a spot “on the board” - they all hold administrative capabilities. Members in this case are integral to the organization’s structure and function. The members of many nonprofits, however, are not always so involved, but they will often be invited to various events held by the charity that regular donors will not be able to attend. 

membership-vs-donation-what-isEva is ready to dive in and learn all about memberships vs. donations!

Membership benefits tend to be tiered, and vary accordingly (e.g., someone who pays $50/month to join your nonprofit might get access to seminars at reduced rates, while someone who pays $200/year might receive some recognition in the newsletter). Membership benefits also tend to vary depending on what your organization is comfortable offering. There is a lot of wiggle room here for you to design a membership structure that suits your organization’s needs.

When designing your membership structure, it is important to ask what your primary goals are. What kind of membership agreement can you reach with people that will entice them to subscribe, encourage them to stick around and enjoy the connection they have made to your organization? And not to mention - how will they benefit your organization? Do you primarily aim to:

  • Raise money?

  • Give non-employees freedom to influence the inner-workings of your organization?

  • Garner help and support from a tight-knit community?

  • Make your organization “member-owned” and member-run?

And in order to amass members, will you:

  • Offer benefits?

  • Offer services?

  • Market your organization as a unique and powerful means through which like-minded people can come together, share their values, and perhaps make an impact on the world?

Ultimately, you can use memberships to dramatically alter the social and professional circle that surrounds your organization (and works within it). This can have a powerful impact on your organization’s purpose and influence.

membership-vs-donation-what-is-donation

What Is a Donation?

Donations are gifts of money, goods, or services that are made to a variety of organizations. Donations may be made by individuals, businesses, and government agencies (although these are usually called grants) in order to support a specific cause or program. In contrast to members, basic donors do not have ongoing rights and privileges within the organizations they contribute to (such as voting rights).

Donations sometimes carry the connotation of being a simple financial transaction. At the very least, small-scale (and one-time) donors can contribute without making any long-lasting ties to your organization. Memberships, on the other hand, turn your contributor into a member of your community who will provide recurring funds. 

Accepting donations can, however, open the door for large benefactors. Rather than collecting $20 a month from members, many nonprofits that accept donations often find corporate sponsorships that contribute significantly to their bottom line. This in and of itself makes donations a promising contender.

membership-vs-donation-driving-factors

Driving Factors Behind Memberships and Donations

The way these revenue-earning tools benefit your organization is not the only thing that sets them apart; the way they benefit your supporters does as well. These driving factors will change up your marketing plan depending on what would bolster each type of contribution.

Driving Factors for Donations

Donations tend to be mission-driven. Since donors do not usually receive anything tangible for their donation, their reward is the feeling of contributing to a worthy cause. You can amplify this feeling with donor recognition, in the form of:

  • Newsletter mentions

  • Thank-you letters, emails or videos

  • A spot on your donation wall

  • Invitations to charity events

  • Social media shout-outs

  • And more

Incentivizing donations usually involves an emotional appeal, which convinces the contributor to support your cause, rather than your organization.

Driving Factors for Memberships

Memberships, by contrast, are generally benefit-driven. Members sign a membership form, agree to the rules, and pay to belong to a semi-exclusive group, because they believe it will provide them with some sort of value or utility. This can be anything from discounts at a gym like the YMCA to access to exclusive services and content on an online nonprofit platform.

Incentivizing memberships usually involves promoting the benefits of being a member, whether that entails exclusive access to events, content subscriptions, or promotions (especially for a trade organization.)

membership-vs-donation-tax-deductions

Tax Deductions for Donations and Memberships

The tax implications of your organization's membership dues are important to note. Generally, member dues are not tax-deductible whereas donations are. The general rule of thumb here is that if a member receives benefits in return for paying the member due (which they do in the majority of cases), then the dues are not tax-deductible.

membership-vs-donation-tax-deductionsTax deductions have Sadie feeling good!

On the other hand, as long as you are a registered 501c3, donations made to your organization should all be tax-deductible. Note that there are a few exceptions to this, usually if the donor receives something in exchange for the donation. The most common case example of this is silent auctions, when a donor can only write off the difference between the fair market value and what they paid for the item.

membership-vs-donation-simple-guide

A Simple Guide to Accepting Memberships or Donations

Both memberships and donations are perfectly fine forms of fundraising, but some organizations benefit more from one over another depending on what their objective is.

For example, if your nonprofit is a trade association, you will likely have members rather than donors. Your members will be industry professionals, or companies themselves, that seek the benefits that come with joining your organization.

Any organization that resembles a for-profit business is usually better off with members as well. This includes any organization that offers a product or service as part of its core operation. The YCMA is a nonprofit that offers athletic facilities all over the country. The gym accepts memberships in exchange for access to those facilities.

If your organization does not offer products or services, you may want to explore donations. Any nonprofit that specifically focuses on diverting resources to make change usually accepts donations. For example, Water.org accepts donations and uses them to affect change in the global water crisis.

Pro Tip: Not every donor wants to be a member. Perhaps they do not want the responsibility or even the extra privileges. It is a good idea, then, to always offer a channel through which simple donations can be made, even if they do not happen very often.

membership-vs-donation-pros-and-cons-members

Pros and Cons of Members

The pros of memberships center on the various incentives you can utilize to not only bring more supporters into your organization, but to make them an integral part of your revenue-earning plan. These include:

  • Members tend to be more involved in the organization, which can mean they are more likely to help with events, fundraising, and other outreach efforts.

  • A strong network of members is a good way to build loyalty within your organization.

  • Members provide a source of consistent recurring revenue.

  • A membership structure is fairly simple to set up (and if you do not know how, you can learn all about it in Springly’s ebook on membership management!). 

The cons of memberships include:

  • Your organization must make sure there is clear value tied to being intimately part of the group (in other words, what do you get from joining?).

  • Memberships are usually not tax-deductible for your contributors.

  • If your organization is hesitant to involve non-employees in various administrative or other influential positions within the organization, you might find that the privileges of the membership you provide just are not enough for some people to entice them. Notably, membership voting rights in nonprofits can get dicey if the administration is not comfortable with members getting too involved in the organization’s behind-the-scenes happenings, including their nonprofit code of ethics.

membership-vs-donation-pros-and-cons-donors

Pros and Cons of Donors

The pros of a donation model center on the ease with which contributions can be made, and how that affects the inclination of supporters to get involved without strings attached. These include:

  • Donations can be collected from many different channels

  • Donations are tax-deductible for your contributors

  • People all over the world can donate to a cause

  • Some people do not want to be intimately tied to just one organization, and prefer to donate when they can

The cons of a donation model include:

  • Your donors typically cannot receive any tangible benefit from donations

  • It is more difficult to get consistent monthly revenue with donations

membership-vs-donation-cost-benefit

Cost/Benefit Analysis

Now that we have come up with a list of pros and cons for memberships and donations, it is time to make your final decision. You should base your decision mostly on the information above, since financial modeling often breaks down when you start bringing in some concepts that nonprofits exemplify, like raising awareness or doing good in the world.

membership-vs-donation-cost-benefitNancy is learning a ton of new tips and tricks!

However, if you have considered everything we have touched on so far and still cannot decide, it may be time for a quick cost/benefit analysis.

How To Perform a Cost-Benefit Analysis

Start with a cost/benefit analysis for your donation-based model. You will want to tally up the cost of running the marketing and logistics needed for donations. The costs of donations can include:

  • Marketing creative

  • Digital marketing outreach

  • Paper and envelopes for direct mail outreach

  • Management software for donations

  • Follow-up costs like thank you letters and donation receipt generation

  • Running events

Then, you will want to generate a realistic figure for your potential earnings on the donations. Use niche-specific averages to determine the success rate of each outreach from both digital and physical channels, as well as attendance and donation figures for events and the likelihood that a one-time donation turns into a recurring donation.

Calculate the yearly cost and the yearly revenue for the donation scheme, and then use the following equation to find your return on investment:

Return on Investment from Donation Model = (Revenue from Donations - Cost of Getting Donations) / Cost of Getting Donations

This number represents how well your expenses on getting donations convert into actual revenue.

Now it is time to do the same with your membership model. Calculate the costs, including:

  • Marketing

  • Logistics

  • Cost of services provided to members

  • Rent for facilities members get access to

Then, find a realistic figure for your monthly membership pricing as well as the number of members you can secure in a given year, and then run those figures through the same equation as you did for the donations.

Finally, simply compare the ROIs from both the donation model and the membership model to determine which one is more effective.

membership-vs-donation-final-thoughts

Final Thoughts

In summary, memberships and donations are both excellent ways to raise money for your organization. However, it is important to recognize the differences between them.

Memberships are generally more beneficial for organizations that want a steady stream of predictable income and to provide products or services to their patrons.

Donations, on the other hand, are better suited to organizations that focus on projects for a cause, rather than ongoing services to their contributors.

If you decide that both can work for you, you can run a cost-benefit analysis to determine which would be more financially effective as a tie-breaker. 

Many organizations will find that the responsibilities and difficulties of each fade into the background as one subsists over the other, or both revenue-earning tools work their magic.

Enjoyed the article? Download it to keep or share with others!

membership-vs-donation-end

FAQ

đź’ˇWhat is the difference between memberships and donations?

Memberships and donations are both methods of fundraising, but they are different in their application, as well as in their benefits and drawbacks. Donations can be marketed to a wider group, often globally, and are tax-deductible for your patrons. A donation is given without expectation or promise of a return favor. A membership, by contrast, typically comes with some benefit such as access to content or a facility, or to networking events. Memberships are generally not tax-deductible. Find out more. 

🔑 Should you focus on members or donors for your nonprofit?

If your nonprofit offers a product or service for contributors, you should generally go for members. If your nonprofit uses funds on projects for a cause, and not for your contributors, you should generally go for donations. Find out more. 

đź“ť What are the pros and cons of collecting members for your nonprofit?

Memberships are recurring and therefore give your nonprofit a more stable source of revenue, but they are usually more expensive to find and maintain than donations. Find out more.  

Member Management
avatar-image
Paul
The Holy Grail of Nonprofit Tips ✨
Get all of the information you need to efficiently manage your nonprofit with our monthly newsletter.