Nobody seems to like charity telemarketers. I have heard this statement so many times I can only assume it comes pre-recorded in the human frontal cortex at birth: “Charity telemarketers pocket 95% of every dollar you give. I just hang up on them.”
I’m here neither to praise or condemn charity telemarketers, but to shed some light on the economics of their work. The conventional wisdom is a dangerous and costly misperception. Here’s why:
That 95% is wrong.
Far too often, the media conflates profit and revenue when reporting on charity fundraising. For example, a recent story ran with the headline, “Meet the 5 telemarketers that pocketed $89 million asking for charity donations.” These were gross figures, so the reader has no idea what the telemarketers’ profit actually were, if there even were any.
This collapsing by the media of profit and revenue when it comes to charity
of all types infects public attitudes about good people doing good work throughout the sector.
Even with respect to gross income, the 95% take the public has in mind is false. The Syracuse story, for example, shows the top five telemarketers in New York were paid 44% — not 95% — of the $201 million they raised in 2013.
Here’s what’s actually going on: the telemarketer rents an office, turns on utilities, buys phones, hires attorneys to comply with states’ charity laws, and does a dozen other things that cost money, not the least of which is hiring people to make phone calls. Let’s say one of those people makes 100 calls every three hours. Ninety-nine people hang up. The 100th person gives $25. The telemarketer just got paid $25 for making 100 calls. Does that sound like a high-margin business?
Qualifier: if a telemarketer is committing fraud by telling you a higher percentage goes to the cause than is the truth, I say throw the book at them. But there is no evidence that charity telemarketers commit fraud with any more frequency than anyone else.
People love to say, “I’d rather give my money directly to the charity.” But in reality they often don’t. If they did, the charity wouldn’t have to hire the telemarketer. But because most people don’t give to charity unless they are asked, charities have to spend money asking people, in various ways. Now, let’s say that the telemarketer’s call prompts a person to hang up and make a direct gift of $25 to the charity. The telemarketer did all of the work that produced the gift, but got paid nothing, and gets a bad reputation on top of it. And consider that if the tele-marketer is paid a flat fee, as some are, then the expense of calling you has already been incurred, whether you give to the charity directly or not.
Long-term value changes the math.
A World Vision telemarketer called me 30 years ago. I made a $25 gift. That put me into the World Vision database. They began sending me solicitations to give $24 a month. I eventually agreed. For thirty years, I’ve been giving $24 a month — almost $9,000. That telemarketer got paid maybe $20 for that! Over the long term the telemarketer only got .2% of the money raised. (The credit card processor got 4% but you never hear about that.) It’s worth it to a charity to lose 65% of an initial small donation in order to get 100% of larger donations over time.
Raising money always costs money, but the ROI typically improves over the long term. For example, a charity hires a new major gift fundraiser for $100,000. Her job is to find $10,000 and up donors. In year one, she raises $100,000. The same could be said of her as of the telemarketers — she pocketed 100% of the donations. But over five years she raises $2,000,000, which makes the cost of her salary over the period just 25% of the total. It takes time to cultivate new major donors. The same economics apply to telemarketers. The long-term value of the huge databases of donors they create for charities can make their short-term fees look small. But states require telemarketing accounting to be isolated, so it can’t be folded as easily into a larger ledger as salaries and other fundraising costs that may be just as expensive.
This widespread misunderstanding of the way fundraising works makes acquiring new donors more difficult and expensive. It also discriminates against poor charities. Small charities serving poor communities or narrower causes don’t have access to wealthy donors the way universities, hospitals, or broader charities may. They rely on telemarketing because it doesn’t have heavy up-front costs. In many cases telemarketers will carry the up-front costs, only getting paid when donations come in. This form of carrying debt is not really any different than banks holding notes on charities for financing their buildings and vans.
You may not like telemarketing, but that doesn’t mean it doesn’t make sense over the long term. If you don’t want a charity to spend money calling you, make regular gifts to them without being asked. And then encourage them to hire a reputable telemarketer to go after the people who don’t.