How does the 5% work?

5% of all revenue received by your project through SPI, after transaction fees, is set aside for SPI administrative expenses.

If the SPI commission is over our budget for SPI expenses plus a safety margin set by the Board, we will refund the remainder to the project budgets according to their relative contributions.   It is expected that as the total SPI budget goes up, the percentage paid by each project will probably go down.

Where does the 5% go?

The majority goes to our accountant, Rich&Bander of New York.   They have to reconcile our accounts as well as preparing around 30-40 pages of tax documents per year for us.  This is between $5000 and $6000 per year.

After accounting, SPI spends money on photocopies, postage and long-distance phone calls for Board business every year.  This is a much lesser amount, less than $1000.  SPI legal filing fees, domain registrations and server-related expenses also make up a minor amount.

We also are carrying a balance for contingencies.   For example, if the IRS were to audit us, preparing for the audit would cost an estimated $5000, and if one of the SPI servers died we might spend $1000 to get it running again quickly.  If SPI has that money on hand, it can avoid emergency re-budgeting and desparate pleas for help.

The 5% does not pay for insurance for the projects or for legal assistance.   If SPI was to offer those to all projects at SPI General expense, we would require much more than 5%, like maybe 25%.

Is the 5% applied to every transaction?

Only to donations, first of all, and not to expenses or transfers from other accounts.   Second, in some cases such as special grants the 5% may be waived at the Treasurer's discretion.

Isn't 5% a lot?

In a word, no.

To compare, Carnegie Mellon University charges 20% overhead to the NPOs it hosts (though this does include insurance).  The United Way charges between 13% and 30% merely to collect and forward donations to organizatons.  American credit card processors charge between 2.5% and 4.5% just to process the transaction.

Or, to look at it another way, to run your own US 501(c)3 would cost you an average of $3000 to set up and $3000 per year to maintain, not including project staff time of a couple hundred hours per year.  It's a bargain!