As someone who has spent the whole of my career in the nonprofit sector, and much of it as a development professional, I know all too well the pressures that nonprofit leaders face when it comes to managing expectations around fundraising expenses. We are willing to do a lot of things that don’t really make sense – all to avoid having to say: “yes, fundraising costs money – and sometimes it costs quite a bit.”
But our unwillingness to speak this truth is not doing us any favors.
When we understate what it really takes to succeed as a nonprofit organization, we create a dangerous downward spiral that is similar to the phenomenon known as “The Overhead Myth” and the “The Nonprofit Starvation Cycle”.
One needn’t look far to find headlines that blast nonprofit organizations for how much they spend on fundraising, and — regardless of the specifics — the reputational damage of those reports can’t easily be undone. But completely disregarding cost of fundraising is also not the answer. Doing so would ignore the fact that return on investment and overall efficiency matter. And that’s really what the cost of fundraising measure is about. It’s about asking and answering the question, “Did these fundraising efforts pay off in the way that we hoped they would?”
The challenge of course is that this isn’t the only question that we should be asking about our fundraising effectiveness, or even the most important one. That’s why BoardSource — along with our colleagues at GuideStar, BBB Wise Giving Alliance, and the Association of Fundraising Professionals — created a new framework for measuring fundraising effectiveness. One that we think prompts a better set of questions about fundraising, and provides a more holistic view of fundraising effectiveness. It focuses on three key measures:
- Total Fundraising Net — the amount of money available to spend on an organization’s mission as a result of its fundraising efforts.
- Cost of Fundraising — the return on investment from dollars invested in fundraising.
- Dependency Quotient — the extent to which an organization depends on its top five donors to fund its work.
The Dependency Quotient is a new measure that we introduced with this framework, which helps quantify the risk associated with dependence on a small group of donors. It provides an important counter-balance to the cost of fundraising by demonstrating an important nuance: Sometimes the organizations that have the lowest cost of fundraising are the most dependent on small group of donors.
That’s because — generally speaking — the cost of fundraising and the dependency quotient have an inverse relationship. For example, broad-based fundraising strategies like direct mail, telemarketing, and special events can cost a lot of money to implement, but often serve as important ways to bring large numbers of new donors into an organization. Conversely, fundraising strategies that are focused on identifying and securing large-scale gifts tend to be lower cost, but can result in high dependency on a few large donors.
This is why a singular focus on the cost of fundraising is so dangerous. By buying into the idea that it’s all about efficiency, we are ignoring the very real issue that organizations may be facing in terms of risk.
This new framework seeks to undo that damage, and position boards and leadership teams for more sophisticated conversations about risk and reward, and a deeper understanding of what it really takes to fund their organization’s work.
Our hope, of course, is that boards and leadership teams take it one step further. We hope that, in addition to changing the way that they talk about fundraising expenses and effectiveness internally, they will change the way that they talk about it externally — to donors and the press.
Because, let’s be honest, every time we tout our low cost of fundraising to a donor or the press, we’re making the problem a little bit worse for all of us. And it’s time for that to change.
Learn more about the new measuring fundraising effectiveness framework.
Anne Wallestad is the president and CEO of BoardSource, an IS member.