FUNDRAISING COSTS

It’s not always easy to explain in a sound bite why certain fundraising costs are necessary for long-term growth or why the return on investment (ROI) for a specific fundraising campaign or event may be low in terms of dollars earned. In an effort to inform charities and the public at large about properly measuring ROI in fundraising, the Association of Fundraising Professionals has a new report out addressing fundraising cost ratios to ensure strategic growth and to equip advocates with information to discuss this with donors and potential supporters.

With thorough recordkeeping, it should be little effort to create full transparency about your fundraising program -- what types of programs you are investing in now to get big rewards in upcoming months and years. Evaluation, accountability, transparency and professionalism should be a part of every fundraising program. The goal is to prove effectiveness and show donors that their money is being well spent.

For example, direct mail aimed at donor acquisition is going to have lower returns to start out. That’s a good reason to focus on renewing and upgrading donors first, but acquisition is still necessary for the base of the donor pyramid. A special event may bring in less than what you spend the first time it is held, but if you are building new contacts and supporters, the investment may be well worth it.

While professional fundraisers may know the particulars of fundraising costs, most boards and donors do not. As the AFP report says, being able to answer those questions “is the best way to assure they will see beyond the simple cost-ratio dial on their dashboard and check under the hood for a more complete assessment. The transparency that keeps their hands steady at the controls will also keep their foot pressed firmly on the gas in soliciting support and backing overall mission.”

“There are a lot of complexities that nonprofit board members need to understand, and unfortunately it’s often a lone chief development officer who has to make the case for fundraising expenditures,” says Leslie Weir, CFRE, ACFRE, director of family philanthropy at The Winnipeg Foundation in Winnipeg, Manitoba.

The document lists six key guidelines in making decisions about fundraising costs and return on investment:

1) Measure fundraising expenses, number of gifts and amount of gifts by fundraising activity and calculate the return on investment for each activity each year.

2) Determine priorities for resource allocation based on the outcomes envisioned in your organization’s strategic plan. Social Return on Investment (SROI), quantifying the added non-financial value created by organizations, obviously informs strategies and decisions.

3) Calculate fundraising costs and revenues using rolling averages over a period of three to five years. Evaluating performance over a period of years allows you to better forecast results of each type of fundraising activity and decide how to allocate fundraising resources, including staff and dollars, most effectively.

4) Develop benchmarks and targets for your organization’s return on investment for various fundraising activities based on past performance and your best estimate of what you can accomplish in the future.

5) Consider increasing your organization’s overall investment in fundraising. If spending more for development costs allows your organization to develop its capacity to generate more net revenue, it could be a wise decision in the long run – even if the cost per dollar raised increases.

6) Remember a basic tenet related to fundraising return on investment: It is much less expensive to renew or increase a donor’s support than to acquire a new donor.