How Does GoFundMe Make Money

There are many online donation sites on the web but GoFundMe is the biggest. Over the years, it became a way to raise money for literally almost everything from casual cases like a prom dress to life-saving operations not covered by health insurance.

Many people often ask questions like “How does it work?”, “How does it make money?”, “How does it verify if the request is legitimate” etc. In this article, you will learn some of the facts about GoFundMe and the answers to the questions about the business model of the company.

What is GoFundMe

GoFundMe is an easy-to-use, for-profit crowdfunding platform that makes money from donations. It allows anyone to raise money for social causes. It allows both individuals and companies to launch fundraising campaigns on the platform. The campaigns are of several categories ranging from emergencies to medical.

The company makes money by charging a fee for every donation users receive on the platform. The fee here is known as platform and transaction fees. GoFundMe also generates money from donations made directly towards the platform by its users.

Since the birth of GoFundMe, It has grown to become one of the world’s most successful crowdfunding platforms. Currently, it has generated over $10 billion from approximately 130 million donations made globally.

How GoFundMe Works

There are several categories of campaigns that can be launched on GoFundMe which include but are not limited to the following:

  • Education e.g to help kids cover the cost of their education  
  • Medical e.g to finance a cancer treatment or pay for a surgery
  • Emergency e.g to help individuals who affected by natural disasters or accident
  • Memorial e.g to honor the passing of a friend, etc

The categories mentioned above are just a few of the several categories of campaigns on the GoFundMe platform. 

As a user, you can set up a campaign within minutes. To set up a campaign, you need to set a fundraiser goal (the amount of money needed), your campaign description with pictures and videos. 

Teams such as sports clubs or families can also launch fundraising campaigns on GoFundMe.

After you are done with the campaign setup, you can share the campaign with your friends, family, and anyone of relevance. 

GoFundMe allows you to distribute your campaign through email, text messages, or social media. 

All these can be done on the GoFundme website or their mobile app which is available for both Android and iOS devices.

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GoFundMe offers larger organizations the GoFundMe Charity tool. This tool is used by organizations to track the progress of their campaign, collect recurring donations, create branded campaigns, and even sell tickets for events.

History of GoFundMe

GoFundMe was initially founded in 2008 in Redwood City, California by Brad Damphousse and Andrew Ballester under the name CreateAFund. 

After it was launched, GoFundMe allowed social media users to raise money for specific causes or celebrations. 

The early stages of the company were not smooth at all as the co-founders had to redesign the website and relaunch under the name GoFundMe in 2010.

During the early days of GoFundMe, the founders bootstrapped the company, refusing to take outside funding. 

Around February 2012, the new company was processing donations worth over $1 million with the volume of donations growing by 500% that same year.

In 2015, the two co-founders decided to sell their controlling stakes to the investor group including Accel Partners and Technology Crossover Ventures (TCV). The company was valued at $600 million at the time of this deal.

After the two co-founders have sealed the deal, they relinquished control of the company and Rob Solomon who was previously Groupon CEO joined GoFundMe as the new CEO.

GoFundMe went ahead to hire skilled employees and expanded to newer markets and it attracted investors too. 

Currently, GoFundMe operates in several countries like the United Kingdom, Canada, Australia, France, Germany, Ireland, Italy, Spain, the Netherlands, and many others including the United States, its birthplace.

What is GoFundMe’s Business Model?

GoFundMe was initially founded as a for-profit fundraising platform though it transitioned into a non-profit donation-based model after users requested that 100% of all donations should go to the cause.

It was sometime in 2017, that GoFundMe donors came up with a view that even though the company’s low platform fees were fair since it helped to sustain its operations, they wanted all of the money to go to the cause. 

The company is encouraged by the suggestion of the donors and the good sentiment of its users around the company, they went ahead to drop platform fees in the United States market and instead ask donors for a voluntary extra tip for the general good of the company.

Initially, GoFundMe’s board of directors was not convinced that switching to the voluntary tip model was a great move but the effective rate of user donations turned out to be enough to keep the business profitable. 

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It was after the approval of this voluntary tip model in the United States that GoFundMe was rolled out to other countries like Canada, the United Kingdom, and most European countries.

Although GoFundMe still charges transaction fees and a nominal per donation amount in these countries, you can expect the company to let go of it in the future gradually.

How does GoFundMe Make Money

GoFundMe, just like similar crowdfunding platforms make money through two different sources which are:

1. Platform fees:

These are fees that are paid by the user who is running the campaign. The user may be an individual, an organization, or a team. It is important to know that the platform fee is 0% for any users who want to start a fundraiser in the UK, Australia, United States, Canada, and most European countries. For the rest of the world, the platform depends on the country, for example, the platform fee in Luxembourg is 5%.

2. Transaction fees:

This fee covers the cost of processing payment. Transaction fees similar to the platform fees also vary depending on the country, for example, in the United States, the transaction fee is 2.9% plus 30 cents while in Luxembourg the transaction fee is 1.4% of the donation in Euros.

What is a GoFundMe Charity?

GoFundMe Charity is a powerful crowdfunding platform owned by the GoFundMe company that allows organizers to raise more funds through engagement. 

Here businesses, organizations, or teams can access all the important information about their fundraising campaign in one location and even create customized email campaigns. 

Further customization features include integrating fundraising campaigns with third-party platforms like WordPress, Salesforce, and Mailchimp.

GoFundMe Charity comes in two subscription plans:

1. Free: In this plan, each donation is subject to a processing fee of 1.9% plus 30 cents and it ensures that the fundraising organization receives 97.5 of the total donation made.

2. Flex: This plan involves a 2.2% percent plus 30 cents processing fee and it ensures that the organization launching the campaign receives at least 94.5% of the total donation made. Donors can also decide to make sure that the organization gets 100% of its donation.

What is GoFundMe’s Funding, Valuation, and Revenue?

GoFundMe had to raise venture capital only once in its history and it was in 2015 when world-renowned investors like Greylock, Accel, TCV, and more invested in the company’s first and only round.

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Though the amount raised was not disclosed, the company was able to amass a valuation of over $600 million and its valuation has been on an exponential rise since then. 

GoFundMe is known for not disclosing figures about its finances to the public.

Frequently Asked Questions (FAQs)

How are donations collected and distributed?

Donations on GoFundMe are routed through GoFundMe payment processors and are only released to the named beneficiaries or in some cases to campaign organizers who have a direct, personal connection to the beneficiary

Are donations capped on GoFundMe?

No, donations often exceed the stated goals and in those cases, the campaign organizer may decide to continue receiving money.

Are funds guaranteed on GoFundMe?

Yes, GoFundMe guarantees that funds raised go only to the victims and their families. Also if the company or a law enforcement agency finds out that the funds raised from campaigns were misused, then the donors are fully protected as they will receive a refund.

Can GoFundMe freeze accounts?

Yes, if there is a need to do so, GoFundMe will hold the funds until the beneficiary is verified.

How do I donate on GoFundMe?

GoFundMe only accepts payments via credit and debit cards

Can GoFundMe be used for scams?

Yes, and there have been reports of scams on GoFundMe. One way scammers operate on the platform is to hijack existing pictures and stories and direct the donations to their websites. Some others may create fake sympathy campaigns

How do I protect myself from scams on GoFundMe?

One way to avoid donating your money to scammers on the platform is to stick only to verified accounts on GoFundMe as they have been vetted and are considered safe.

Conclusion

In summary, GoFundMe currently generates a huge percentage of its revenue from transaction fees since it has dropped platform fees in some countries. 

However, donors, most of the time tip the platform out of generosity to help support the mission of the company. 

The money generated from the user tips is used effectively to pay the employees of the company and sustain the operations of the company.

References

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