The Economics of Fundraising: How much should fundraising cost?

The Economics of Fundraising: How much should fundraising cost?

Economics of Fundraising: cost and return on investmentHow much should fundraising cost? Or put another way, what should be the return on investment?

This is an important question where views differ and the answers should matter to non-profit organisations, because their answer will almost certainly matter to their supporters.

So if the question is, how much should fundraising cost; the answer is… it depends on the type of fundraising activity in question. Different types of fundraising activities have different costs (or different returns on investment).

I will write more on this in future posts. For now, consider the following:

Effective fundraising is the best possible investment an organisation can make. 

Over time, an established program can be raising about $5 for every $1 spent on fundraising, and even better in some cases. Put another way, overall costs should ideally be 20% or less of the total amount of funds raised, and this would be across a range of activities. Twenty percent or better is a very defensible number for an established program that has a reasonably wide variety and sound balance of fundraising activity types. For start-up programs or for other circumstances a much higher percentage could be warranted for a period of time.

Over multiple years, a properly balanced program should be achieving results where the cost of fundraising is continually falling toward 20% (or better) of funds raised.

A 20% cost of fundraising for an established program is a very important figure to consider, after all, how many other investments can potentially deliver an annual return of 400%? That’s right! A 20% cost of fundraising is still a 400% return on investment!

But time frames and timing are also important. Within the first year, a program should (hopefully) raise more funds overall than what is spent, unless there are extenuating circumstances. Any who expect a 500% return on investment in the first year (and maybe even the first few years) are usually being unrealistic.

I once had a discussion with a CFO who told me that their cost of $1 million to raise $4 million was unacceptable. When I asked him what number would seem more reasonable, he couldn’t answer the question and instead restated that he thought it could be better. I was curious and asked him what he was basing his expectations on. He wasn’t able to answer that either, other than to say he just ‘felt’ it could be better.

Having a desire for better cost management is one thing, and no doubt we all want that, but putting the plans in place to achieve it is not so easy.

In terms of return on investment, fundraising programs also deliver more than the money. Many good programs have reported all kinds of additional benefits from the involvement of talented donors and prospects developing goodwill toward the organisation. Many of the more transactional types of fundraising activity, which don’t necessarily deliver a large ROI, are very important feeders for other types of fundraising activity that achieve much larger transformational gifts, which represent a stunning ROI. All types of fundraising activity are important.

 

AskRIGHT Fundraising Consultants can help you maximise the revenue of your fundraising activities and capital campaigns. Contact admin@AskIGHT.com or call 1300 758 812 (AU) / 0274 929 636 (NZ).

 

Jeff Buchanan

Jeff Buchanan

Senior Fundraising Consultant at AskRIGHT
Jeff has 15 years experience as a professional fundraiser and consultant, achieving considerable success for several organisations, and recognised by his peers for national awards.

To find out how Jeff can help your organisation, contact j.buchanan@AskRIGHT.com.
Jeff Buchanan