Whether it’s just human nature, cultural norm, or bare necessity of a budget, the search is endless for the best
deal. We want the most for the least. And in the nonprofit world, this is the dominant paradigm.
Frugality is ingrained in my DNA, so thriving in the nonprofit world has not been a difficult adjustment for me. In fact, as a substantial part of my fundraising career has been spent in turning around massive income deficits, I’ve had to grow revenue without the benefit of an increased budget. During my two most successful career fundraising endeavors, in 2010 and 2014, I actually led respective organizations to
their highest income ever while at the same time reducing organizational expenses.
What I’ve learned is frugality alone will not increase your fortune. You must also be prudent with how you invest your money, opting for outcome-based expenses that are a component of a larger, proactive nonprofit fundraising plan.
Generally on the top of my chopping block are special event expenses and high end collateral pieces. I replace these expense lines by investing at targeted levels in the key areas of strategy and donor engagement. In my greatest professional triumph, I took an organization past $1 Million for the first time in its history – surpassing prior year revenue by 97% -- at a cost of just 5.3 cents to raise a dollar. The key to success is not spending as little as possible. It’s putting your money into key activities that will produce a tangible return on investment.
To illustrate this point, consider a microanalysis. I’ve examined 5 Colorado nonprofit organizations from five distinct markets – affordable housing, culture/arts, homeless/self-sufficiency, terminal care, and animal rescue – that cumulatively produce more than $165 Million annually, with more than $72 Million from fundraising efforts. Cumulatively, these 5 organizations spent approximately $10 Million on fundraising in their last reported year. Ten million dollars may sound like a lot for just 5 organizations to spend on fundraising over the course of just one year, but in reality this was remarkably efficient: they averaged 14 cents to raise one dollar.
Compare this to a separate subset of 5 Colorado nonprofits – one randomly from each of the same categories as above – where none exceeded $1 Million in annual fundraising income. Cumulatively, this group spent only $307,728 – more than $9.5 Million less than the major organizations above. But their total fundraising income was under $2 Million, meaning their average cost to raise a dollar was a staggering 24.4 cents. One of the organizations in this sample bordered on the absurd, reporting $121,343 in fundraising expenses to produce a gross income of $60,375. The main takeaway: spending less total dollars does not equate to greater efficiency.
So what is a reasonable cost to raise a dollar? Although this is a complex question that is contingent upon so many unique circumstances, your best practice target should be 12-20 cents. Of course, this is all relative, as you can argue that raising $2M at a cost of 18 cents per dollar is more preferable than raising $1M at 10 cents a dollar, since at the end of the day you would net more revenue for your mission. This is merely a guideline to speak to the larger philosophy of being both frugal and prudent, to generate maximum dollars.
Analyzing your fundraising ROI should go beyond macro calculation. You should run comprehensive analytics on every campaign, looking beyond response rates and gross numbers to examine ROI and determine the cost to raise a dollar. In a seminal publication more than a decade ago James Greenfield provides rubrics for reasonable cost guidelines that continue to be widely endorsed today. Specifics I employ in every endeavor: major gifts $.05 to $.10 per dollar raised; grant writing $.20 per dollar raised; direct mail renewal $.20 per dollar raised; direct mail acquisition $ 1.00 to $ 1.25 per dollar raised; and special events $.50 of gross proceeds (not including indirect costs of time/labor).
Subsequent blog posts will look at real world application of these best practice guidelines in micro campaigns. In the meantime, invest in people and processes proven to maximize ROI.
About Perry Jowsey
Perry Jowsey, CFRE is a professional fundraiser and featured speaker who has been leading financial turnarounds for more than a decade,
where he has generated more than $20 million in Jowsey_Headshot-1-1.jpgrevenue specializing in small and financially distressed budgets. Perry has worked with local and international media, foreign government delegations, and philanthropists on the Forbes 400. In unparalleled acts of fundraising success, he has cut costs while producing ROI’s as large as 4000%, leading to features in national trade publications and special invitations to present to groups around the United States. Here is the link to Perry's LinkedIn profile
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