By Norman Olshansky: President NFP Consulting Resources, Inc.
You are an executive or key volunteer leader of a nonprofit who has been in your position less than a year. You know the honeymoon is over. One of the many issues you want to address is the concern that so much of your fundraising time, energy and resources are spent planning fundraising events. It seems like the mission of your agency has shifted, and staff as well as volunteers spend more time planning parties than delivering service.
Fundraising events can and do play an important role in many not for profits. However, too many organizations do not fully understand how to maximize their fundraising efforts.
This may seem like blasphemy to some, but events should primarily be utilized to attract new donors, cultivate existing donors and volunteers, say thank you to your donors, volunteers and staff, or to provide community education. For most organizations, events (with a few notable exceptions) should not be undertaken if they are expected to provide a good financial return on the organization’s investment of time and resources to produce the event.
According to the AAFRC Trust for Philanthropy, 78.3% of all charitable contributions come from individuals. It is also well known that 80%-90% of all funds raised from those individuals are from the top 10% of donors. In other words, major giving is where it’s at. This is not to preclude the importance of broad based memberships and giving at all levels, but rather to focus your fundraising energies on the best return on investment (ROI) of time, staff, volunteers, and other resources, facilities, etc.
Fundraising Costs and Return on Investment – National Averages
Direct mail to general lists
(non donors) Cost 115% ROI 15%
Special Events Cost 50% ROI 50%
Planned Giving Cost 25% ROI 75%
(prior donors) Cost 20% ROI 80%
Foundations/Corporations Cost 20% ROI 80%
Major Gifts Cost 5-10% ROI 90-95%
all methods: Cost 20% ROI 80%
(Based on: James Greenfield, Fund Raising: Evaluating and Managing the Fund Development Process)
The chart indicates that you would need to spend $1.15 in order to raise $1.00 through direct mailings to general lists. To solicit major gifts, you would spend 5 to 10 cents to raise $1.00.
When calculating ROI, keep in mind the indirect costs associated with fundraising. For example staff costs are not just for those who are directly involved with fundraising. Other staff and administration typically are involved as well, albeit to a lesser extent. The costs associated with staff and volunteer time, facility usage, overhead expenses, as well as out of pocket direct costs should all be factored into determining ROI.
From an ROI perspective, it costs less and produces more income to raise major gifts than to use other methods of fundraising. While a variety of methods should be used in each organization, all too often, nonprofits tend to utilize, to a disproportionate degree, those methods which produce the lower returns, (events and direct mail) rather than those that are more effective (major gifts).
Special events can build excitement, engage people, provide enjoyable opportunities for volunteers but they typically cost too much to produce to justify the amount of money they raise. As a result, most organizations are reducing the number of events they hold and are putting more emphasis on major gifts and planned giving.
Using the return on investment approach to analyze fundraising performance is an excellent way to engage leadership and staff on how best to plan your future fundraising activities. You will find that Board members who have for-profit business experience will likely better understand such an approach to planning and resource allocation.