The Hidden Cost of Digital Tools: A Leadership Guide for Nonprofits

Like a garden where well-intentioned but scattered plantings can lead to an overgrown maze rather than an inviting landscape, nonprofit organizations often find themselves in a similar situation with their technology investments. Recent data reveals a startling reality: while nonprofits are investing significant portions of their budgets in technology, much of this investment isn’t bearing the intended fruit.

The Scale of the Challenge

If your organization’s technology budget were a cup of coffee, approximately one-third of it would likely go cold and have to be dumped. The numbers tell a sobering story: Nonprofits typically waste about one-third of their IT investments through unused software licenses, redundant systems, and inefficient processes. For smaller nonprofits investing up to 13.2% of their overall budget in technology, this represents a significant leak in resources that could otherwise fuel their mission.

Beyond the Numbers

This isn’t just about dollars and cents. Like a house where every room has a different type of thermostat – each working independently and inefficiently – many nonprofits find themselves with a patchwork of digital tools that don’t work in harmony. The impact ripples through every aspect of operations:

• Staff spend precious time creating workarounds for systems that don’t quite meet their needs
• Donors experience friction in their giving journey
• Mission-critical data gets scattered across multiple platforms
• Teams maintain outdated equipment long past its prime

The Path Forward

The good news? Like turning a large ship, the change doesn’t need to happen simultaneously. The most successful organizations approach technology transformation like a well-planned journey rather than a sudden leap. They start by understanding their current landscape, identifying the tools that truly serve their mission, and systematically addressing the gaps.

Consider this: 89% of nonprofits aren’t achieving their full potential with technology investments, but the remaining 11% have found their sweet spot. These organizations have discovered that effective technology isn’t about having the most tools – it’s about having the right ones used well.

A Call to Action

As leaders, we can transform this challenge into a catalyst for change. By understanding where technology waste occurs and taking strategic steps to address it, we can redirect valuable resources back to our core mission. After all, every dollar saved on unnecessary technology is a dollar that can directly impact the communities we serve.

The journey toward optimal technology use isn’t about dramatic overhauls or cutting-edge solutions—it’s about thoughtful evaluation, strategic planning, and aligned execution. Like a well-conducted orchestra, the goal is to have every digital tool play its part perfectly harmoniously with your mission.

Together, we can turn the tide on technology waste and create more resilient, effective organizations that make every dollar count in service of our missions.

Learn More

For deeper insights into managing your technology stack effectively, explore these valuable resources:

• ModOp’s AI Playground Episode: Dive into how larger organizations are creating structured approaches to evaluate new tools while maintaining security and compliance
  
• Rooted in Revenue’s Tech Stack Discussion: A practical conversation about implementing responsible AI policies and evaluation frameworks, even for small teams
  
• All-Volunteer, All Heart: Quick tips for non-profits to audit their technology spending and identify opportunities for savings
  
• Tech Stack Management Workshop Series: A comprehensive session covering practical strategies for subscription management, security practices, and tool evaluation frameworks for teams of any size

You may wonder how much non-profits waste on average out of their budget spend on their tech stack.

The reality for nonprofits regarding digital tool waste is quite significant and concerning:

Digital Investment Patterns

Small nonprofits spend about 13.2% of their overall budget on technology, while larger organizations spend around 2.8%[1]. Despite this investment, only 12% of nonprofits are considered “digitally mature,” though 74% view digital transformation as essential[5].

Efficiency and Waste

Nonprofits face several key challenges with digital tools:

• Many rely on outdated databases and paper-based processes that lead to operational inefficiencies[1].
• Nearly two-thirds of nonprofits express concerns about underutilizing their digital platforms and tools[3].
• 60% of nonprofits report that their donors expect better experiences than their current technology provides[5].

Technology Impact

The consequences of poor digital tool management affect nonprofits in multiple ways:

• Limited budgets force difficult choices between mission-critical activities and technological investment[20].
• Outdated technology leads to inefficient operations and difficulty managing donor relationships[1].
• Only 36% of nonprofit leaders are “highly satisfied” with their current technology tools[5].

Cost Reduction Strategies

To minimize waste, nonprofits should:

• Take a staged approach to digital transformation rather than attempting wholesale changes[20].
• Regularly audit software usage and licenses to identify unnecessary tools[2].
• Focus on implementing core digital tools directly supporting their mission and operational needs[8].

Footnotes for this section:[1] https://bradyware.com/nonprofits-digital-divide/[2] https://www.walkme.com/blog/unused-software-licences/[3] https://lightful.com/blog/digital/efficiency-and-impact-through-technology[4] https://nethope.org/articles/digital-nonprofit-finance-investment-to-impact-for-nonprofits/[5] https://www.salesforce.com/news/stories/nonprofit-statistics-trends-2022/?bc=HA[6] https://www.arkusinc.com/archive/2022/the-path-to-net-zero-how-nonprofits-go-paperless[7] https://www.techrepublic.com/article/half-software-licenses-unused/[8] https://www.impactmybiz.com/blog/nonprofit-digital-transformation/[9] https://whatfix.com/blog/digital-transformation-in-nonprofits/[10] https://www.techrepublic.com/article/report-unused-enterprise-software-is-costing-businesses-a-fortune/[11] https://www.techtimes.com/articles/307657/20240926/how-technology-transforming-nonprofit-management-look-digital-tools-driving-change.htm[12] https://whatfix.com/blog/digital-transformation-in-nonprofits/[13] https://blog.invgate.com/software-reharvesting-cuts-costs-heres-how[14] https://www.communityforce.com/understanding-the-impact-of-technological-advancement-on-nonprofit-organizations/[15] https://electronicreusingassociation.us/how-it-works/[16] https://jfwaccountingservices.cpa/is-outdated-technology-costing-your-nonprofit-association/[17] https://www.linkedin.com/pulse/embracing-technology-leveraging-tools-nonprofit-efficiency-tpntc[18] https://www.salesforce.com/news/stories/nonprofit-statistics-trends-2022/?bc=HA[19] https://zylo.com/blog/unused-software-cut-costs/[20] https://rsmus.com/insights/industries/nonprofit/how-nonprofits-can-navigate-digital-transformation.html[21] https://www.reddit.com/r/Accounting/comments/dit4ut/accounting_advice_for_starting_a_small_nonprofit/[22] https://www.techsoup.org/green-technology[23] https://dataro.io/2024/02/16/artificial-intelligence-for-nonprofits/[24] https://www.techrepublic.com/article/half-software-licenses-unused/[25] https://www.forvismazars.us/forsights/2024/05/how-investments-in-technology-can-reduce-overall-costs-for-nonprofits[26] https://www.epa.gov/smm/wastewise[27] https://www.backupify.com/blog/how-unused-licenses-are-costing-your-company/[28] https://www.edstruments-blog.com/post/the-edstruments-effect-navigating-financial-challenges-in-education-and-nonprofit-sectors[29] https://npoinfo.com/nonprofit-data-collection/[30] https://ezo.io/assetsonar/blog/cost-of-software-licenses/[31] https://www.charitytracker.com[32] https://www.nonprofitpro.com/post/how-determine-true-cost-new-software-your-nonprofit/[33] https://www.springly.org/en-us/blog/the-state-of-nonprofit-technology-report-2020-springly/[34] https://sourceforge.net/software/waste-management/for-nonprofit/[35] https://www.donorpoint.com/where-is-the-waste-in-your-nonprofit/[36] https://charitydigital.org.uk/topics/what-is-e-waste-and-how-can-charities-help-10857[37] https://jellyfish.tech/blog/the-essentials-of-software-development-for-nonprofits/[38] https://statetechmagazine.com/article/2016/07/4-tips-monitoring-and-reducing-software-licensing-waste[39] https://insights.som.yale.edu/insights/can-technology-transform-the-nonprofit-sector

Here the numbers

Budget Allocation

Small nonprofits spend approximately 13.2% of their overall budget on technology, while larger organizations spend around 2.8%[1]. However, 89% of nonprofits don’t fully realize their potential with their technology investments[2]. Plain spoken, they are quick to implement before testing the necessity, viability, and security of these apps, services, and subscriptions.

Waste Metrics

Organizations typically waste about one-third of their IT budget through:

• 38% waste on desktop software
• 34% waste on data center software
• 33% waste on SaaS applications[4]

Infrastructure Impact

Many nonprofits compound this waste through:

• Creating unnecessary workarounds
• Duplicating tasks
• Maintaining outdated equipment[1]

This inefficiency is particularly troubling as only 11% of nonprofits consider their digital approaches highly effective[2]. The “starvation cycle” exacerbates the situation, where organizations feel pressured to minimize overhead costs, leading to counterproductive cost-cutting measures in technology infrastructure[5].

From a financial perspective, if a nonprofit allocates the recommended 2-4% of its annual revenue to technology[1], approximately one-third of that investment may be wasted due to inefficient use and redundant systems[4].

Footnotes for this section: 

[1] https://www.predictiveit.com/2023/10/technology-budgeting-and-costs-for-non-profit-organizations/

[2] https://tealtech.com/blog/how-nonprofits-maximize-their-technology-budget/

[3] https://ssir.org/articles/entry/the_nonprofit_starvation_cycle

[4] https://venturebeat.com/data-infrastructure/report-companies-waste-1-3-or-more-of-their-it-budget/

[5] https://501c.com/nonprofits-overhead/

[6] https://www.linkedin.com/pulse/how-much-your-investment-wasted-floris-klaver–knqsc

[7] https://itassetmanagement.net/2016/10/03/247-average-software-waste-user/