The Fee Fallacy: Why We Pay Banks but Not Overhead

Welcome to this edition of the Click and Pledge's fundraising command center podcast, where we talk the why, the what, and the how in the Click and Pledge's ecosystem.

Today, we are diving deep, and this is part of our why series.

And we are tackling something I think we've all felt, that infamous cover the fee checkbox on a donation form.

Right.

I mean, think about it from your own experience. You've decided, okay, I'm giving $50, you feel good, and then just before you click submit, that little box appears asking for another dollar 50.

And everything just stalls.

It stalls. Exactly. So why does that 3% feel so much worse than say if you had just decided to give $60 from the start? It's weird.

It is weird, but that feeling is what we're digging into. Our mission here is to use some really high level behavioral economics. We're talking Nobel laureates, landmark studies to show you that what you're feeling is scientifically validated. And then we'll outline a much better strategy. We're going show you how to turn that fee from a tax into what we call a multiplier.

This is, really essential stuff for fundraising effectively.

All right, let's do it. Let's start with that immediate gut reaction, that feeling when the fee pops up, it just feels like a toll, you know, an extra cost that has nothing to do with why I wanted to donate.

Exactly. And there's a term for this, it's what researchers Prelik and Lowenstein call the pain of pain.

The pain of pain.

The key idea here is something called a decoupled cost. So when you donate your $50 you're coupling the cost, the money with the benefit, the good feeling.

Right. It's one package.

It's one rewarding exchange, but that fee, that's a decoupled cost. It's separate from the mission. It feels like you're paying for the plumbing, not for the actual impact.

So the $50 is the reward, but the $1.5 is just friction. Why does our brain register such a small amount so negatively?

Well, this is where it gets fascinating. We really recommend looking at the neuroscience here because it's a huge warning sign. When you see that separate phi, a part of your brain called the insula activates.

And the insula is?

It's the region associated with pain So and even while the donation itself is lighting up your reward centers, giving you a dopamine hit, that little fee is literally triggering a pain signal at the exact same time.

That's incredible. So you're creating a chemical battle in the donor's brain at the most critical moment.

You are. You're voluntarily triggering a pain response. And that leads us right into the Nobel winning that explains why the label on that money is so important.

Mental accounting.

Mental accounting. You know, in pure economics, a dollar is a dollar. It's fungible.

But our brains don't work that way at all. We are messy accountants.

We are wonderfully messy. And this is where we suggest focusing on Richard Thaler's work, the Nobel Laureate. His findings on mental accounting matters showed that we put money into these, separate mental buckets. And for a donor, there are basically two big ones. The first is the mission bucket.

Money for programs for helping people that's seen as virtuous, rewarding.

And when we ask them to check that box to cover the fee, where does that money go?

Straight into the fee bucket or what we sometimes call the waste bucket.

The waste bucket. Ouch.

Yeah. It's money for admin, for processing. It's viewed as a tax, a necessary evil maybe, but it's not the mission. So by forcing them to check that box, you're making them consciously move money into their mental waste bucket.

You're forcing them to fund something that feels non virtuous.

And that creates huge internal friction, even for a tiny amount. It's not about the logic, it's about the emotional label on the expense. And this aversion to overhead is so strong, it actually led to one of the most important fundraising studies ever.

Okay, let's go there because this aversion you're talking about, this waste bucket idea, it's a huge problem for charities, right?

A massive problem. And this brings us to a 2014 study in the journal Science. It was by Kneezy, Keenan and Kneezy. And they looked at, 40,000 donors.

40,000.

Yeah. A huge sample. And they set up this brilliant experiment. One group was told, you know, the standard thing, a portion of your donation goes overhead.

Okay. The control group.

Right. But the second group, they were told that some wealthy private donors had already covered all the overhead.

So they were guaranteed that 100% of their donation would go to the mission.

The 100% impact model, no waste bucket required for them.

And the result?

It was transformational. Donations from the 100% impact group?

They nearly tripled.

Tripled. Not 10% more, not 300%.

Tripled. It proves the reluctance isn't about the money, it's about the framing. Donors don't want their dollar to pay the electric bill, they want their dollar to be the hero.

That is just a staggering finding. Yeah. So if this is the science, if the fee checkbox triggers pain and activates this overhead aversion what's the solution? What should organizations do instead?

This is where we recommend a complete strategic pivot.

Stop asking for a 3% fee. It feels like a tax. Instead, start asking for a ten-fifteen percent operations grant.

Wait hold on, you're telling me after all this about how much people hate a tiny 3% fee that we should ask for 15%? Sounds like spectacularly.

It would fail spectacularly if you just called it a bigger fee. But that's the point. The framing is everything. You're not asking them to pay a bill anymore.

So what are you asking them to do?

You're offering them an opportunity. You're using that knee z research to reposition them. They're not just a donor, they're an angel investor. They're part of a keystone circle.

Ah, so they become the wealthy private donor from the experiment.

Exactly. Their extra contribution is what enables the 100% impact promise for everyone else. They become the hero that unlocks the model.

That completely flips the mental accounting. Their extra money isn't going into their own waste bucket. It's going towards eliminating the waste bucket for the entire community.

That's the key. So the script we suggest testing is something like:

Give me the language.

Something like this. Join our mission Keystone Circle by adding 15% to your gift. You cover all our essential operational costs, ensuring that 100% of all other public donations go directly to the field. You unlock 100% impact for everyone.

You're not paying a bill, you're funding a movement. It changes the act from a loss into leverage.

It does. Now, of course, this promise has to be credible. You have to have the internal alignment to make it true. But it shifts the focus from a tiny, painful cost to a large scale strategic investment.

So the big takeaway here is that the language around your costs is probably the single biggest factor in how generous your donors will be.

It is. It's not about tricking anyone. It's about understanding their psychology and framing the need in a way that feels empowering, not draining.

It makes you wonder, doesn't it?

What's

that? How many potential donors, maybe even major donors, have we all lost over the years just because we made giving feel like paying a utility bill instead of well, instead of changing the world?

That's the question everyone should be asking as they look at their donation forms tonight. We have to make giving feel as powerful and rewarding as it truly is.

An absolutely essential strategic shift, leveraging science to build better, more lasting donor relationships.

That's the goal.

For more information about this and all Click and Pledge products, make sure to visit clickandpledge.com and request for a one on one training or demo whether you are a client or curious about our platform, just ask us and we will gladly get together with you to chat.

And don't forget to subscribe to this podcast to stay up to date with all the latest and greatest features of the Click and Pledge fundraising command center.