The viral success of some recent online social media fundraising campaigns (i.e. ALS Ice Bucket Challenge) has sent ripples through the not-for-profit community. At a time when many organizations are experiencing funding reductions that threaten to alter the sustainability of their programs, some not-for-profits are reconsidering their proven fundraising strategies in favor of new tactics to better target the next generation of potential donors.
Before you completely restructure your strategy though, make sure you know the key metrics that will determine the effectiveness of your fundraising initiatives.
How Much Did You Pay For That Donated Dollar?
You’ve defined your vision, determined your fundraising goals, recruited volunteers and finished marketing your fundraising event or campaign. Now it’s time to analyze the monetary outcome of those activities. Non-monetary outcomes are equally important to analyze, but that’s another topic entirely.
Return on Investment (ROI) is the most common metric to consider when evaluating the effectiveness of your fundraising efforts, but the inverse of this ratio – Cost to Raise a Dollar (CRD) – is equally important. These calculations are:
Return on Investment = Net Revenue ÷ Cost of Fundraising Activity
Cost to Raise a Dollar = Cost of Fundraising Activity ÷ Net Revenue
In terms of the accounting treatment, the key to providing accurate fundraising costs is to consider “Joint Cost Allocation,” which occurs when fundraising activities also contribute to the organization’s program objectives. An example of this would be an organization whose mission is to eradicate a disease that sends mailings of educational information about the disease along with an appeal to make a contribution to the organization. The more costs that can be allocated to program expenses in this scenario, the higher the true ROI (and lower the true CRD) figures will be.
Know Your Benchmarks
Benchmarking your ROI and CRD ratios against industry data should provide you with enough direction on whether to maintain, change or eliminate certain fundraising activities. But remember, when it comes to raising money for your not-for-profit, size does matter. Larger organizations have the benefits of economies of scale and generally have a lower CRD.
To get a better idea of the success of your organization’s efforts, compare your current fundraising results over the results generated during the previous two years to allow for the consideration of donor cultivation time and the average donor life cycle. You will likely notice higher costs reported in the first year of your campaign or fundraising event.
Other important metrics to track and consider when comparing one campaign or activity to another include:
- Increasing/decreasing in the number of donations
- Increasing/decreasing in the average size of donations
- Identifying a change in the number of new and recaptured donors
Opportunity Costs: Are You Focusing on the Right Fundraising Strategy?
There are some organizations that incur significant costs to conduct a large-scale fundraising event or activity. At the end of the day, the actual net benefit to the organization’s bottom line is less than if the organization were to simply solicit donations from its current member or donor base. Once you have tracked your metrics and reviewed your findings, you will have a better idea as to which opportunities will have a greater impact on your bottom line and which tactics simply don’t make financial sense.
Do you need help stretching your fundraising dollars? Email Rea & Associates to learn how you can ensure your fundraising strategies are in line with your organization’s objectives.