This is Not a Perfect Tool for Measuring Fundraising Efficiency (But It’s Close!)
Anyone who has worked with me knows I’m passionate about measuring the success of plans before and after execution. After all, how else do you improve? Fortunately, The Chronicle of Philanthropy announced this morning that BoardSource, GuideStar, the BBB Wise Giving Alliance, and the Association of Fundraising Professionals just released a new tool that will make measuring fundraising efficiency easier.
You can download the toolkit from the BoardSource website by clicking here.
How this Tool Works
The tool for measuring fundraising efficiency is a relatively simple spreadsheet. The output is three metrics that a non-profit can use to assess whether the organization has an appropriate balance of outcomes, risk and reward.
Total Fundraising Net
The first metric is the net income from fundraising. The user inputs the total contributions generated and the labor and expense costs associated with bringing it in. The total fundraising net must be big enough to fund the organization’s operations.
The Dependency Quotient assesses whether an organization is overly dependent on a small group of major donors. To calculate the Dependency Quotient, the sum of the contributions from the organization’s 5 largest donors are divided by organizational expenditures. The larger the quotient, the more the organization is at risk if a donor changes giving priorities.
Cost of Fundraising
The third metric divides total fundraising expenses by the net income from fundraising to produce a measure of efficiency. The lower the metric, the more productive each dollar spent on fundraising is to that organization.
What Makes This Appealing
The metrics are interesting, but the companion workbook for non-profit board members is even more useful. It provides helpful guidance to board and staff members who are considering their fundraising options. It also discusses the pros and cons of common fundraising tactics, including direct mail, special events, annual giving, sponsorships, grants, major gifts and planned giving.
More importantly, the workbook talks about the importance of building a coordinated fundraising strategy. The mix should include tactics designed to bring in new donors and retain old ones, grow major donors and expand the volume of small donors. It should include tactics that deliver short-term outcomes and tactics that deliver big financial results but take more time to develop. Finally, the workbook cautions against evaluating any one fundraising initiative independently, since many fundraising efforts operate interdependently.
Why It Isn’t Perfect
There are some shortcomings to this tool. For example …
First, it may be difficult for some organizations to accurately calculate expenses related to fundraising. This is particularly true if the organization also has earned income, such as membership fees, ticket sales, or tuition. For example, a theatre might ask for a patron to round up their ticket purchase as a donation while soliciting a subscription for season tickets. How much of the cost of the subscription flyer should be allocated to fundraising? What about the labor costs associated with it?
Hidden Labor Costs
Second, it doesn’t take into account the cost of volunteer labor. For example, a parent-teacher association may not have many labor costs associated with an event. But that even might be very labor-intensive because of the number of volunteer hours involved. Assuming that the population of volunteers has a finite amount of time they are willing or able to donate, asking parents to donate time to one event may mean they don’t have time to donate to another event. This type of volunteer trade-off is not factored into the metrics.
No Clear Ranges for Assessing Outcomes
While the metrics are useful, the tool doesn’t specify appropriate ranges. This is quite appropriate, as the ranges will differ by organization type, size, risk tolerance and maturity. However, some organizations may struggle to understand what numbers they should target in their efforts to become more effective at measuring fundraising efficiency.
Limited Usefulness to Small Non-Profits
This tool may be less helpful to new non-profits and very small non-profits whose efforts are entirely volunteer-driven and whose expenses are largely absorbed by the volunteers themselves. These organizations are likely to have minimal labor and expense costs, which will skew the first and last metrics, and may not be in a position to avoid the dependency quotient in the second metric.
Why It’s Still Worth Reviewing
Despite these hitches, this is an excellent tool for board (and staff) discussions about fundraising. It provides solid information, along with guidance on using the outcomes as the basis for a fruitful discussion.
The tool can also be used as a risk assessment in prospective planning. By plugging target revenues and anticipated expenses into the spreadsheet, the organization can use the metrics to evaluate the overall expected performance of the organization.
What Do You Think?
Do you like this new toolkit? Why or why not? Share your thoughts in a comment on my blog.
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