By Alex Davis
Southern Tier Communications Strategies, LLC
Nonprofit fundraising is a tight process. Even large windfalls must be managed responsibly. Cutting costs is the most efficient and effective way to make the money stretch, right? No, we don’t mean laying off staff or slashing programs. We mean spending money wisely and thereby cutting costs to raise the money in the first place.
Yes, there’s a cost to nonprofit fundraising.
- There’s a cost to putting on that fundraiser.
- There’s a cost to writing grant proposals.
- There’s a cost to acquiring donors (and keeping them).
- There’s a cost to the software and programs to track and organize it all.
There’s so much that goes into nonprofit fundraising, these factors can be easily overlooked.
So How Do You Increase Nonprofit Fundraising Revenue By Decreasing Costs?
It’s a focus thing. You need to focus on net (not gross) revenue. Gross income is revenue before expenses. Net income, also called net earnings, is revenue minus costs – goods acquired, salaries, overhead, general expenses, etc.
You can see how the numbers could be vastly different. Your nonprofit might feel great that you grossed $50,000 for your community mission in a big community gala.
But let’s subtract some logical expenses:
- $10,000 in dinner entrees
- $5,000 to rent the community center
- $5,000 in staff time organizing (employee salaries)
- $2,500 in marketing materials (radio, TV, print, social media, mail)
- $1,000 in donor gifts
- $1,000 in fundraising software tracking/accounting
- $500 in door prizes
You see how quickly a $50,000 gross profit became just $25,000 net? That’s the point: it costs $0.50 on average to raise $1.00 via special fundraising events.
Is that bad? Not necessarily. Just understand the risk and return on investment (ROI). Some nonprofits even LOSE money on fundraising events that are either overly ambitious or poorly managed (or both).
Analyzing ROI to Make Decisions on HOW to Fundraise
With that example, let’s check out some other fundraising avenues to make the most important decision: what to do. That big community event may be tremendously popular, but if it loses money or breaks even, its only value may be as a “friend-raiser” to promote your nonprofit’s mission.
So (if that’s the case) let’s look elsewhere for options.
Our friends and colleagues at Joanne Oppelt Consulting, LLC say the average return on investment for major donor gifts is a whopping 900 percent! But consider this: does your nonprofit currently have the staff and technological bandwidth to manage and track major donor relations?
The average annual donor retention rate is 46 percent. This mostly encompasses charitable givers (average Americans) who give relatively small amounts. What that boils down to is that for every hundred donors a nonprofit gains, it loses 64 of them the next year.
Since it costs more to acquire new donors than retain current ones, a shift in strategy needs to take place. Nonprofits must emphasize new donor acquisition AND on current donor retention.
And Don’t Overlook These Other Nonprofit Fundraising Factors
You see the theme? Spending money wisely to return more in the end. It’s not just cutting costs. It’s investing in activities and resources that give the highest return on investment.
Let’s look at some:
Grant writing is absolutely essential for most nonprofit organizations. Many need core funding – typically in the form of a large grant – to build the bulk of their general operating budgets, as well as various smaller grants to supplement programming, staff and administration.
The ROI is often SUBSTANTIAL. A full-time grant writer (U.S. average $70,000 annually salary) or a contract grant writing service (approx. $25,000-$35,000 annually) may net several hundred thousand to several million dollars in grant monies per year.
Sure, you may not have the most expensive donor database. Your system may not have the best interface. And that’s OK. All nonprofits need is a program that fits your needs. Those include having such features as being able to integrate your mailing, donor and volunteer lists.
A foundation and grantmakers database (we recommend GrantStation.com) is a fantastic investment, saving hours spent in grant funder research. Such a program will help you to quickly pull out reports on your donors and to effectively chart your nonprofit’s future.
Some say training is an optional expense – an “if we can afford it” thing. But that’s just silly. Fundraising staff who receive more training always yield better fundraising results.
They’re the stewards of your nonprofit’s community message. The front line of fundraising. Train them!
Those few hundred dollars your agency spends on networking events, conferences and training webinars may be helping you realize hundreds of thousands of dollars. Such initiatives also bring people together, create a long-lasting image for your nonprofit and get the word out about what’s coming up.
Are You Ready for Nonprofit Fundraising Success?
To raise the most money, nonprofits must look at the net revenue as opposed to gross revenue. The least expensive way to improve net is to decrease costs and to spend more wisely on fundraising endeavors.
Always remember the ultimate litmus test: return on investment. A fundraising strategy is an investment. It will cost money. Your task is to choose the fundraising activities that bring the greatest ROI. If you need help, an expert consultant will point your organization in the right direction.