How can you tell if your fundraising is efficient? For many nonprofits, it’s a surprisingly difficult question to answer. A new tool created by BoardSource, the Association of Fundraising Professionals, GuideStar, and the BBB Wise Giving Alliance offers a formula to help a nonprofit discern whether its has a good balance of money raised, risk, and expenses.
"A lot of folks are really getting it wrong when it comes to what matters and what we should be paying attention to when measuring fundraising effectiveness," says Anne Wallestad, chief executive of BoardSource. "What we hope this new framework can do is focus folks on what’s really important and why."
Two schools of thought dominate the discussion about fundraising effectiveness, Ms. Wallestad says. The first maintains that the less you spend on fundraising, the better. The second asserts that the cost of fundraising doesn’t matter at all.
These arguments miss the mark, she says. To help nonprofits create a more accurate assessment, the coalition has developed a tool that measures three criteria: the amount of money they raise, how dependent they are on the biggest donors, and how much they spent on fundraising.
The first question nonprofits should ask, according to Ms. Wallestad: Are you raising enough money to support your work and your mission?
To find out, executives should determine their net fundraising total by subtracting fundraising expenses from the total amount raised.
Then they should assess their vulnerability by identifying the proportion of overall support that comes from their five largest contributors.
Ms. Wallestad suggests leaders ask, "If our top five funders walked away from us, what portion of the budget would be funded?" She adds, "You have to get the balance right" or you may be too reliant on too few sources of income.
How It Works
To determine a group’s "dependency quotient" as they call it, a nonprofit should divide the total contributions of its top five supporters by its organizational expenditures.
Finally, leaders should assess the cost to raise a dollar by adding the staffing and other expenses associated with their fundraising program, then dividing that total by the net fundraising total.
Using those three criteria allows nonprofits to put the cost of fundraising into perspective.
For example, some nonprofits that aren’t overly dependent on their top five supporters may have diverse sources of funding but relatively high fundraising costs. Those groups may want to examine whether their individual giving programs that tap a broad portion of the population are paying off and whether they are doing enough to secure large gifts.
Nonprofits that are overly dependent on their top five donors often have lower fundraising costs but few sources of revenue. Those groups may want to secure more big donors.
Charities that are not too dependent on their biggest few donors and have low costs of raising money have the healthiest fundraising programs, the coalition says.
You can download the tool below. For more information and a guide for discussing this approach with your board and leaders, go to the BoardSource website.