Why Leave Money In The Bank When You Could Spend It On Fundraising?

Why Leave Money In The Bank When You Could Spend It On Fundraising?

If you are a board member, CEO or employee at a mission-based non-profit organisation, I salute you. To think you commit your working life and/or your spare time to make this world a better place is inspiring.

There is something about the mission of your organisation that drives you and others to work as CEOs and board members. Fundraising is simply asking, and asking effectively, that someone else join you in that mission – changing lives, saving lives, protecting the environment, seeking education, health, beauty or meaning.

Most established charities should be able to invest another $250,000 a year in high-value fundraising activities and raise $1,000,000 – certainly if you take a three-year time frame and invest that amount for three years you should raise an additional $3,000,000 over that time period.

There are different ways to look at these numbers. This represents a NET return on fundraising cost of 300% per annum. After you have repaid the cost of fundraising, you have achieved an additional $3 for every dollar you invested. You have 25% cost, and 75% profit.

For a supermarket to make a profit of $750,000, it has to sell $15,000,000 worth of groceries. You can see it is a lot easier to raise money than it is to make money.

There is a maxim in economics to the effect that “you get optimal results by choosing the best alternative”.

 

Why do charities choose investments earning 5%, 7% or 10% return on their investments when fundraising offers a 300% net return?

 

On these numbers, clearly fundraising represents the better alternative, and you would think that charity boards and CEOs would want to optimise revenue that they could apply to achieving their mission. So why not seek optimal results by choosing additional fundraising over bank, bond or stock market investments?

 

I will explore 4 reasons not to spend more on fundraising:

1. A key reason is that success is not guaranteed.

This is true, but all day every day we weigh up risks and make decisions when success is not guaranteed. You can turn the key and expect your car to start but there is no guarantee. Of course, the risk of failure to start is reduced if your vehicle is serviced regularly and supplied with petrol, and you don’t leave it parked with the lights on.

In fundraising, you improve your chances of success by improving your selection of agents (both fundraising staff and prospects) and by monitoring the fundraising process in appropriate detail. How closely should you monitor fundraising from your position as CEO or board member?

I once interviewed the CEO of a Swiss bank about the banks corporate giving program. In the course of the conversation, I made a flippant remark about not putting all your eggs in one basket. He replied immediately that this was not the Swiss way. The Swiss way, he informed me, was to put all your eggs in the best available basket, and never take your eyes off those eggs.

What does it mean to keep your eyes on your fundraising investment? As CEO or board member, what do you watch?

  1. Watch your own behaviour and attitudes to fundraising

Many fundraisers are attracted to or leave fundraising positions because of the CEO or board. “They just don’t get it” is a familiar chorus amongst professional fundraisers as they churn to their next organisation.

  1. Know the annual fundraising plan

When boards don’t ask for one, or CEOs don’t insist on one, there is a good chance that there isn’t one. Insist your fundraising put up an annual plan in advance and talk it through with them. You want to be in conversation with your fundraisers. A CEO and board that understand and are active in fundraising will attract better fundraising staff and will retain them.

  1. Monitor the fundraising plan, by looking at indicators of short, medium and long-term results.

Of course, you monitor the amount of cash received and pledges made in the current period, but this is likely to be a lagging indicator, rather than a current or future indicator. The other things to watch are — and there are just five:

  1. The number of major gift prospects under active management
  2. The number of advised bequests and number of bequest conversations taking place in the current period
  3. The number of new donors
  4. The percentage of last year’s donors who gave again this year; and
  5. Board members’ giving because ultimately giving to institutions tends to track board members’ giving.

When highly-systematic fundraising began in Australia in the late 1950s, and throughout the early 1960s the country was so astonished by the fundraising results of Wells Organisations and other early consultants, that banks would lend the price of hiring consultants because results seemed so certain.

Before you make an appointment with the bank I want to give you one reason to be cautious about the money you invest in fundraising, and this has to do with the nature of money. The money you spend on fundraising will be flexible money – money that is available to you to spend on any purpose, but you need to know that the money you get back from fundraising (at a treble or other multiple) will mostly be for quite specific projects. Now, these are probably projects that you have chosen and sought money for, but you need to know the large gifts given to organisations, are usually for specific purposes. The exception to this is bequests. Most bequests are left to an organisation for non-specific purposes or for broadly-defined purposes.

 

2. There is only so much money to go around.

This comment is often made with the metaphor of a pie or cake, with the key idea that the circumference and height is fixed so that the bigger share you take, the lesser share is available for someone else.

In Australia donations by individuals have gone up 23 of the last 26 years, or 24 out of 26 years in inflation-adjusted terms [1]Professor Myles McGregor-Lowndes and Marie Crittall “An Examination of Tax Deductible Donations Made By Individual Australian Taxpayers in 2012-13” Working Paper No. ACPNS 66. So the pie or cake grows most of the time.

In the last 10 years, we have seen gifts of $1m and more go from rare to an almost weekly occurrence. If you are looking to break records now as a philanthropist you will need to give a very large amount. We have already seen several individuals, and family foundations make commitments of $50million and more. We have seen the increase in corporate philanthropy led by Westpac’s bell cow announcement in 2014 of a $100million scholarship program.

I suggest to you that the appropriate metaphor is not the pie or the cake, but the pudding – in particular Norman Lindsay’s Magic Pudding. Remember, it was said of the pudding, “the more you eat, the bigger it gets”. This is true of philanthropy.

 

3. Australians are not as generous as people from other countries.

Australia ranks third or fourth in generosity in the world (we tussle with Canada for third place in most indices of philanthropy). So we don’t have to feel that we do poorly by comparison with others.

The country that takes second place in world generosity rankings, the United Kingdom has had a number of inquiries into how to grow philanthropy. One of these was the Thomas inquiry which looked at increasing philanthropy for the nation’s universities. Its conclusion was that people were pretty good at giving, they just weren’t very good at asking. A subsequent inquiry into the effectiveness of measure taken by the British government to increase philanthropy to universities reached another remarkable conclusion, that the more fundraisers an institution employs the more money that institution raises.

So the Brits have already spent a lot of cash to find out how to raise more money, and we can learn these lessons without charge: to raise more money, ask more often and ask more effectively; and employ more fundraisers to get it organised.

 

4. We don’t have enough tax incentives to encourage giving.

Australian taxpayers get full tax deductions for eligible contributions to approved charities. John Howard’s government set in train a number of reforms to encourage philanthropy and these have been effective. These included tax-effective workplace giving, what are not called Private Ancillary Funds, and spread of deductions over five tax years.

The Abbot government is also looking at philanthropy and has already signalled that it will make it easier for people to donate shares to charities. Most charities have not yet worked out if this is a good thing, or how they can promote it.

Sometimes we take heads of organisations to see good practice fundraising in other parts of the world. One place we have been is New York University. The best-funded part of NYU is the law school — why? Because someone donated a spaghetti factory to the law school, and pasta-funded lawyers now graduate every year from that place.

We have equal tax incentives to the USA for this type of giving, but we don’t promote it.

 

Conclusion

The keys to effective fundraising are what they have always been: getting the project, prospect, asker, and amount right in order to put a compelling case to someone who cares about your mission and has the financial capacity to support you.

Nothing about fundraising is particularly hard — most organisations set out to solve issues that are much more complicated than fundraising (homelessness, disability, disadvantage, access to education or healthcare), but highly-effective fundraising is tricky to implement. It gets run off course easily because people love golf days, gala balls and other high-cost low return activities, or because they want to chase the latest fundraising fad.

CEOs and boards have an important part to play in fundraising by:

  • Approving a great fundraising plan and watching it closely
  • Employing great fundraisers
  • Representing the organisation and its mission to donors and potential donors.

If optimal results come from choosing the best alternative, you might consider the cost and return of fundraising to see if you invest more or to invest differently in your fundraising program.

 

 

AskRIGHT fundraising consultants can help you to optimise your fundraising: call us on 1300 758 812 (Australia) / 0274 929 636 (New Zealand) or send an email to admin@AskRIGHT.com.

 

Dr Daniel McDiarmid

Dr Daniel McDiarmid

Principal Consultant at AskRIGHT
Daniel is a highly experienced and innovative fundraising professional with more than 30 years of success raising funds for higher education, research, religious and other organisations in Australia and New Zealand.

To find out how Daniel can help your organisation, contact d.mcdiarmid@AskRIGHT.com.
Dr Daniel McDiarmid

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