Fundraising is time consuming and sometimes expensive. Let us look at ways to make it more efficient.
The number of resources consumed to achieve success measures the efficiency of an activity. Since fundraising is about money, it is appropriate to translate all of the resources into dollars (labor hours, opportunity loss, supplies, advertising and marketing, etc.). Using dollars makes it easy to create a ratio of dollars raised to dollars spent.
Efficiency
So what is a reasonable ratio? We encourage our clients to strive to have 82% of every dollar raised spent on the mission (only 18% is spent on raising funds). Other organizations, such as the Better Business Bureau use other guidelines.
Let us assume that a fundraising event costs ,000 to put on (venue rental, staff time, marketing, food, entertainment, etc.). Let us assume the attendees give ,000 (entrance fees, donations, purchases if there is something to buy or bid on, etc.). The arithmetic looks like this:
Income ,000
Cost ,000
Net ,000
Efficiency ,000/,000 = 28%
Instead of having 82% of the funds for the mission this event provides only 28% of its funds for the mission. It would be better stewardship for the donors to stay home and write a check for the same amount they would have spent.
This is only one activity in an entire year of fundraising. However, achieving the annual goal of 82% efficiency means that the organization must raise an additional ,000 without any expenses (staff time, newsletter, etc.). For your organization, how realistic is that? The alternative is to have the cost of raising the rest of the funds for the year significantly above 82%. While it is possible, for most organizations it is unlikely. The largest and best fundraising organizations find it difficult to keep the mission dollars above 90%.
When a major donor underwrites the event costs, the results are more favorable but still short of the desired goal.
Income ,000 + ,000 (major donor underwriting of event costs)
Total Income ,000
Cost $ 5,000
Net $ 7,000
Efficiency $ 7,000/,000 = 58%
Clearly, the major donor helped to improve the ratio. Of course, this simple example assumes that no costs were incurred to attract the major donor's support. Even with the support of the major donor, it makes reaching the organizational efficiency goal difficult.
Of course, the unmentioned alternative is to significantly increase the event income. If the event generates more than ,000 it will achieve the efficiency goal.
Here is a different way to look at efficiency. Let us assume the agency has a 0,000 annual budget. Holding an event that raises ,000 produces only 1% of the annual need. It would take 100 events to fund the organization. If the event produces ,000 it is providing less than 5% of the needed income or more than 20 similar event will be necessary to fund the mission.
Many organizations hold three or more events each year but are unable to satisfy either efficiency test. Is now a good time to weed out some of the inefficiency and focus your fundraising on the most productive opportunities?
The goal of achieving 82% is achievable. It requires careful planning, being intentional about efficiency, and ensuring that events achieve the necessary donor participation to produce sufficient income.
Next Step:
Work with the board to establish an efficiency goal for your fundraising
Measure the efficiency of all of the fundraising activities (year-end appeal, special events, newsletters, etc.)
Determine which ones can be modified to reach your efficiency goal and abandon the rest
Fundraising is very competitive. The level of competition is going to be increasing for the next several years. At the same time, the donors are becoming more aware of issues like fundraising efficiency. In addition, foundations and rating agencies are being force to be more attentive to fundraising efficiency.
Over the past few years donor attrition has been high for many nonprofits. To our knowledge no one has studied what percentage of the donors have been lost due to dissatisfaction with the fundraising efficiency, but it is reasonable to assume that number will increase as donors become more concerned about fundraising efficiency.
When a donor becomes frustrated by inefficiency, he or she has two choices. One is to circumvent the inefficient process and write the check directly to the agency. The other is to walk away from the agency. How many of your donors are so passionate about the mission that they will take the time to circumvent the inefficient process?
Organizational sustainability is dependent on having a sustainable funding stream. It is very difficult to have a sustainable funding stream without having an efficient fundraising process.
If you had help making your fundraising more efficient, would the increased efficiency more than pay for the cost of the help?
Fundraising Efficiency