March 27, 2000

By BOB TEDESCHI

Charitable Groups Find Revenue in Web Retailing

Companies involved in e-commerce have always seemed a lot like not-for-profit operations -- constantly on the lookout for new funding and constantly losing money, all the while stressing that profits are not the immediate priority.

The similarities are becoming greater still, as nonprofit groups have begun to rely on e-commerce to generate revenues and streamline their organizations. Nonprofits with disparate missions, like the American Civil Liberties Union, the National Rifle Association and Save the Children, now sell goods online, while institutions like the Pew Charitable Trusts use the Internet to skim inefficiency from the paper-intensive grant process.

In so doing, these groups are not only finding new sources of money, they are also making better use of the money they already have.

Save the Children, an international children's relief charity, is a case in point. According to Aggie Stern, who runs the charity's retail division, the organization cannot afford to mail more than one catalog annually to its 100,000 patrons. Yet the group suspected that there was year-round demand for the ties, jewelry and other goods that it sells at its headquarters in Westport, Conn., and in limited amounts through other retailers.

So in mid-November it began selling the same goods on its Web site (www.savethechildren.org), regularly updating the merchandise. The results have been amazing, Stern said. The organization expects to sell $300,000 of merchandise over the Web this year, she said, while maintaining a similar level of sales in the store and catalog operations combined.

Such success stories are spreading quickly in the nonprofit sector, said H. Robert Wientzen, chief executive of the Direct Marketing Association, many of whose members are nonprofit organizations. Wientzen said that a recent association report showed that of the $102 billion that nonprofits raised from all sources last year, $18 billion came from selling products mail order and on the Internet -- $2 billion more than in 1998, and $5 billion more than in 1996.

The report did not break out mail order and Internet sales, but Wientzen said e-commerce was responsible for a significant amount of that growth. "Nonprofits are finding that the Internet makes niche marketing even more palatable and profitable than direct mail," he said.

For instance, he said, a nonprofit company that sells goods through a catalog could sell the same amount of goods on the Internet while spending 80 percent less, "presuming you have a site that's attracting people."

His caveat underscores a complicating factor for other nonprofits looking to copy the success of Save the Children and others. To begin with, as the for-profit e-commerce companies have shown, building a site's traffic can be costly and arduous. But even if organizations can somehow clear that hurdle -- by promoting the Web site on every piece of fund-raising literature mailed, for instance -- other sizable obstacles remain.

Among them are finding staff with the time, expertise and interest to maintain the Web site; convincing donors that a retail operation will somehow advance a charity's mission; and, of course, dealing with the customer service and fulfillment issues that have brought even retail giants like Toys "R" Us to their knees in the online realm.

Stern, of Save the Children, said the organization's experience with catalog marketing helped smooth the transition to Web sales because the fulfillment and customer service systems had already been established through the group's catalog. Even so, in the middle of last year's holiday rush, the Web site generated so many orders for Save the Children's goods that one company Stern hired to help pack and ship items failed to keep up, forcing the organization to take back those duties.

"It was madness," said Stern, who relies on part-time help to handle the holiday rush. "I can tell war stories from now until tomorrow, but we're still very happy with the site."

The complexities of building a full-scale e-commerce operation have been enough to prevent some other nonprofits from looking at their Web stores as anything but marginal revenue builders. The American Civil Liberties Union, for one, is taking a gradual approach to building its Web store, which opened last year (www.aclu.org).

According to Loren Siegel, the organization's director of public education, the ACLU devotes "a tiny percentage" of one staff person's time to the Web store, which sells pamphlets, videos and apparel, among other things.

Despite the scant effort devoted to the Web store, Siegel said it generated $50,000 in revenues last year, to go along with $50,000 the organization raised through a one-page list of items it included in newsletters. But that revenue has not yet been enough to outpace the fulfillment, Web development and merchandising costs associated with the store.

"Our mission is not to make money," Siegel said. Instead, by selling literature, the store helps disseminate information central to the organization's programs, she said, while the apparel sales build public awareness of the ACLU "But we are still hopeful that by using this medium for distribution, we will eventually make a profit."

While e-commerce has provided a promising new tool for some nonprofits, it has actually spawned other charities. Hugging Hands International (www.hugginghands.org), a Web-based organization that was founded last April to give money to children's charities, "would not have been possible without the Net," said Jim Meyers, a co-founder of Hugging Hands.

The site features a gallery of children's artworks, but it does not yet sell them. Instead, it uses the art to attract more than 100,000 monthly visitors to the site. Based on that traffic, the organizers secure advertising sponsorships from corporate partners, a portion of which goes to charities. Anderson Consulting is the current sponsor, but Meyers said other "million dollar" sponsorships were pending.

In the back offices of other nonprofit organizations, the Internet is bringing changes that are less quantifiable, but no less profound, said Ken Weber, director of nonprofit client services for AppNet, an Internet consulting firm. "More often than not, the product that nonprofits deal with is information," Weber said, "and the Internet is helping them move that information much more efficiently than ever before."

One example of that is found at the Philadelphia-based Pew Charitable Trusts, which gave nearly $250 million to nonprofit groups last year. Because the trust, by definition, needs no annual income from outside sources, the organization does not need to sell goods on its Web site (www.pewtrusts.com). But according to David Morse, a Pew spokesman, it has been able to cut "substantial costs" from its operation simply by allowing prospective grant recipients to submit some parts of their grant applications online.

Morse said the organization might also build an extranet, or password-protected Web site, so its grant recipients can communicate more effectively with each other and with the Pew trusts. A reason not to do so, however, may be that Pew's beneficiaries do not always have the time or technical expertise to make effective use of such a system.

"While we're hopeful about all of this, we also have to bear in mind that we're trying to make our grantees more effective -- not foist the latest tool or gadget on them just because we find it interesting," he said. "We want it to be a case where if we build it, they will come."

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