I comparison shop at a moment’s notice. You might have caught me in Costco or Target on my phone checking prices. Or you might have seen me looking for reviews on the product in hand. Intuitively we know that while cost matters, quality or desired impact also matters. When looking to make a purchase we don’t want to overspend, but we do want to see the desired results. For some reason, this logic is not always applied on mission-focused nonprofits seeking to create change in our communities.
How many times have you been asked, “How much does it cost to raise a dollar?” Has this question felt like taboo?
This is not a bad question; it’s a good question. But when asked in a vacuum without context or additional measures, an individual cannot evaluate the impact of a nonprofit or the effectiveness of a development program. For this reason, I was overjoyed when the Association of Fundraising Professionals, BBB Wise Giving Alliance, BoardSource, and GuideStar came out with a new framework for measuring the effectiveness of fundraising in 2017.
“Investments in effective fundraising strategies should be made not despite our need to fund our missions and work, but because of it.”
The connection between mission and development is beautiful! It allows many to invest and be part of a desired outcome. But when it is seen as a necessary evil, the wrong benchmarks are reviewed.
While there are many measures an organization may use to evaluate the effectiveness of its fundraising strategy, there are three primary measures that this collaborative promotes to provide a picture of an organization’s fundraising health.
Total Fundraising Net: The amount of money available to spend on an organization’s mission (Total Amount Raised – Total Fundraising Expenses = Total Fundraising Net). If it’s not enough to fund the organization’s work, then the other two measures are irrelevant.
Dependency Quotient: The dependency quotient measures the extent to which an organization is dependent on its top donors to fund its work. This is calculated by dividing the sum of the top five donors by total expenses. If one of your top donors stops funding you, would it impede your ability to deliver your mission?
Cost of Fundraising: A measure of efficiency, the cost of fundraising measures how much it costs to raise money within your organization. This must include the salary of staff connected to fundraising. Fundraising is relational. As your largest investment in fundraising, it needs to be included.
There are no right or wrong answers here. The key is to look at all three and balance the risk and reward you are looking to achieve through your fundraising program. Based on your development plan and/or business model, are these numbers giving you what you need to fulfill your mission? If not, what needs to change?
For most, the total fundraising net is not enough to reach the next step. Then do you need to expand capacity?
Some are shocked by how dependent they are on a few donors and that ignites a passion to diversify their base of support. Some are okay with their dependency and have safeguards in place to mitigate a change.
For others, their cost in fundraising is too high and they need to really dive into their strategy to see what is working and what is not. I have also seen that number too low, which affirmed the feeling of limited bandwidth and supported the investment in additional resources to fund growth.
That’s the big picture. The real fun comes in looking at your time and costs by strategy. By functionally allocating your staff time and direct costs by effort, you can dig deep and evaluate if the efforts are delivering the desired impact against your overall plan. This deep dive does not need to be done annually but is helpful every three years or during a period of transition or preparation.
There are great tools online to help you calculate your fundraising effectiveness or to help you have a conversation about effectiveness with your board and staff online. As always, we are here to assist with evaluation and strategies to help you #DoGreatThings!