Determining the True Cost of Fundraising

Fundraising is about more than ROI and cost to raise a dollar. It’s about justifying the work being done by an organization and maximizing efficiency. And transparency is key to determining the real value of a fundraising campaign.

That according to Michael Lowstetter, vice president of finance and chief financial officer of the Union Grove, Wis., nonprofit Shepherds Ministries, who spoke at a session at Blackbaud’s 2008 Conference for Nonprofits held last month in South Carolina.

Lowstetter said that popular fundraising measures such as ROI, total revenue, total expense and cost to raise a dollar are important — but, he asked, are they enough? To become truly transparent, Lowstetter and co-presenter Nancy Appel explained, organizations must understand the process of fundraising and determine the true costs, then calculate the costs for the current year — not when the funds actually come in.

Appel, manager of donor communications for the Minnesota drug and alcohol addiction nonprofit Hazelden, said fundraisers need to ask themselves questions such as:

* What are we providing?
* What does it cost?
* How does the cost to accomplish one activity compare to the cost to accomplish another?
* Can we spend more to get more?

“Evaluation is where the impact on the long-term process is determined,” Appel said. “When calculating expenses [for an event, for example], capturing all costs leading up to the event, the day of the event and in days after the event is essential to transparency and ultimately determining the true costs of fundraising.”

The speakers also offered these tips for pinpointing the true costs of a variety of fundraising strategies:

Events
Events are time intensive, but they can give organizations significant net revenue and a predictable scenario: Do the work, get the money.

“However, sometimes a one-time event may not be conducive to building long-term relationships and support around an organization’s mission,” Appel cautioned.

Fundraisers must remember to calculate these items to determine the true cost of an event: location rental or facility costs (even if the event is held at the organization’s facilities); food and service costs; consultant fees; design, printing and mailing costs; and staff costs related to planning, attendance and follow-up.

Annual fund
Appel said annual funds usually are high in cost to raise a dollar, compared to other fundraising methods.

“To be successful with an annual fund, a nonprofit really needs to identify those who are prospects for major gifts and build support for the mission,” she said.

Fundraisers must remember to include these items when calculating the true cost of an annual fund: design, printing and mailing costs; telephone calls or campaign costs; staff cost, including fundraising staff; and gift administration.

Major gifts
A major-gifts campaign can be very cost effective, but the return is unpredictable, the speakers warned.

“Major gifts can provide significant funding for projects or capital needs that would otherwise be impossible for an organization,” Appel said. But, remember, Lowstetter added, it’s essential to figure in staff and travel costs related to major gifts.

“Travel is often required to make that connection with a potential donor,” he said. “With costs going up, it can get pricey.”

To determine the true cost of major-gift campaigns, fundraisers must remember to calculate these items: gift-processing costs; status-reporting costs; travel and entertainment costs; and staff costs, including gift officer, president/executive director and gift administrator.

Planned giving
Since planned giving is very long-term in scope, Lowstetter said it can be decades until gifts are realized.

“These long-term gifts should be integrated into the total fundraising efforts,” he said. “It can be done economically — although it can be difficult to measure potential because it’s hard to prove until you realize the gift amount.”

Appel added: “This avenue can help current donors make tremendous contributions to your organization — much more than they could with current-use gifts.”

Calculating the true cost of planned-giving campaigns depends on factoring in these items: design, printing and mailing costs; telephone calls or campaign costs; travel and entertainment costs; legal, investment and other related costs; consultant costs; gift administration and reporting costs; staff costs, including planned-gift officer and gift administrator.

The ability to accurately calculate expenses for activities decreases greatly from events to annual fund to major gifts, and especially with planned gifts, Lowstetter said.

“But the answer is in how transparent you can be,” he added.

An integral part of transparency and determining the true cost of raising funds is team work. Appel said nonprofits’ development and finance offices must work together to develop and grow their working relationships.

“Recognize fundraising as not only as a means to build revenue but also a way to help your supporters have a voice in your work, demonstrate their gratitude, stay connected and support your nonprofit status,” Lowstetter added. “And listen to them.”

Melissa Dodge is a public relations and media coordinator for Blackbaud.