Fundraising for Nonprofits

Inspiring Gifts that Transform

Monday, January 21, 2008

What is the average fundraising cost per dollar raised?

In the last few days, a couple different consultant friends have both told me about clients quickly growing frustrated that their fundraising efforts are not “turning a profit” within the first few months. I blogged recently that in order to successful raising money, nonprofit leadership needs to make a long-term commitment to the process. However, the question remains, “How long must one wait?”

My friend and talented nonprofit technology consultant Robert Weiner recently turned me on to a few fundraising benchmarks. Included are statistics pulled from James Greenfield’s book, Fund-Raising: Evaluating and Managing the Fund Development Process. Greenfield states the U.S. national average cost to raise a dollar is 20 cents, which he breaks down into the following:
  1. Capital Campaign/Major Gifts: $0.05 to $0.10 per dollar raised.
  2. Corporations and Foundations (Grant Writing): $0.20 per dollar raised.
  3. Direct Mail Renewal: $0.20 per dollar raised.
  4. Planned Giving: $0.25 per dollar raised (and a lot of patience!)
  5. Benefit/Special Events: $0.50 of gross proceeds.
  6. Direct Mail Acquisition: $1.00 to $1.25 per dollar raised.
  7. National Average: $ 0.20
One of the challenges with such benchmarks are they do not take into account different nonprofit markets and missions. It is a lot easier to raise money for puppy dogs, than say for some rare and unknown disease. As a rule, social welfare nonprofits receive smaller average donations than organizations in other areas, such as education or the arts, and thus must solicit larger numbers to acquire adequate funds. Nor is it fair either to compare a small, community nonprofit with a large, established university. Most importantly, uniform benchmarks do not take into account start-up acquisition costs and the typical donor's giving life-cycle.

In the past, a general rule of thumb I have used is from the Maryland Association for Nonprofits. Their recommended Standards for Excellence are that organizations work for a 3-to-1 fundraising efficiency ratio over a five-year period. The important factor here is that fundraising efficiency is measured over a period of years, in which market factors and acquisition costs are accurately weighed against total revenues received.

However, I think perhaps Mal Warwick states it most clearly when he writes:
"The 'overall fundraising Cost to Raise a Dollar' is a myth. There is NO such standard, and anyone who tells you there is one should survey the real world of fundraising in all its diversity. One organization might be embarrassed to spend more than a dime to raise a dollar, while another might be fortunate to squeak by with 40 or 50 cents on a dollar -- and both might be ethically run, well-managed organizations."
Therefore, as with most things the answer to the question is, “it depends.” It depends on the organizational fundraising goals and what financial risk the agency leadership is willing to take to reach them. Most importantly, it depends on how effectively the organization uses monies raised to fulfill its mission. That should always be our primary benchmark.

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4 Comments:

At 2:23 PM , Anonymous marie@granthelper said...

I love Mal's comment. Many a worthwhile organization is doomed because so many foundations and well-meaning donors apply the "10-20% administration" rule. Meanwhile, 80% of all contributions come from individuals, and 80% of those individual contributions go to hospitals and universities. Why? Because they invest heavily in their fundraising programs. Try this exercise: Check the Fundraising Expense and Contributions lines on your Guidestar report. Then choose a similar organization that you admire and compare their figures to your own. Simplistic, but instructive! If you'd like to see a sample chart, check the Development Planning Workshop link at my Free Resources page: http://www.granthelper.com/links.asp?id=70648&page=1

 
At 11:56 AM , Blogger Gayle said...

Marie,

Thank for the comment and the tip. Always looking for good resources to add to my library.

Peace,
Gayle

 
At 10:16 AM , Anonymous Geoff said...

Hi Gayle,

Thanks for another interesting post. Here's my two cents . . .

In any investment choice, cost is only relevant to the return it produces. Measuring ROI over 5 years is a very effective way to determine the worthiness of an investment which allows for many (though arguably not all variables).

To do this you need the cost of acquisition and the 5 yr long-term-value (LTV) of your donor segment. As per your post, a good Dm program should produce a 3:1 LT ROI. The outlook becomes even brighter when considering that Dm donors are fantastic prospects for monthly sustainers, that when done effectively are worth 5 Yr $1,000-$1,500 in LTV. This certainly makes the $35 cost to acquire (Dm donor) look like a good investment.

Sadly though, many a fundraiser cannot tell you the LTV of the one-time donors or monthly sustainers on "their file" to justify their cost to acquire. This is where mis-using an "averge" can become deadly.

All the best,
Geoff

 
At 10:41 AM , Blogger Gayle said...

Excellent points, yes!

 

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