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| Path: Main Street > Resources/Library > Research Articles > Feature Article |
Don't watch fundraising costs, but cost-effectiveness
By Alan Sharpe
November 23, 2009
I received an email from a fundraiser who is about to lose her job. Her board of directors has decided they cannot afford her salary. They see her salary as just a line item in the budget, one found under the heading of costs rather than income. They blame their decision on the recession. I blame the board. And I sympathize with my fellow fundraiser.
The metric to watch in fundraising is not cost. It's cost-effectiveness. We fundraisers have to spend money to make money. How much we spend, and when we spend it, and how we spend it, should be determined not by some arbitrary number on our budget but by the return we anticipate from spending that money.
Five of the silliest words ever spoken in the English language are, "That's not in our budget."
What many members of volunteer boards fail to grasp is that increased spending must precede increased income. If you want your bequest income to increase, you must first increase your spending on promotion (think brochures, letters, advertisements, seminars). If you want your major gift income to increase, you must first increase your spending on identification and cultivation (think database research, travel, solicitation materials).
So the question your board should be asking is not, "Can we afford to spend this much?" but rather, "What is the anticipated return if we spend this much?"
I've seen this first hand. I worked for a brief while at a nonprofit that eventually laid me off because they ran short of money. I was their chief development officer, the one they hired to boost their income, but, when money got tight, they laid off the very person who could have raised more money for them, if they had only been willing to spend money first.
To persuade your board or your executive director to spend money in a tight economy, you need evidence. If you have proof from past campaigns that you can spend 23 cents and raise a dollar, show that proof. If you can demonstrate from a test mailing to a rented list that you can acquire new donors at a cost of only $11 each, and that they will pay for themselves within seven months and have a lifetime value of $892 and six years, show that proof as well.
Warren Buffet and Bill Gates don't like to spend money any more than your board does. But they like to spend money if the anticipated return on their investment is attractive. That's why they spend billions of dollars a year on acquisitions that show up on the costs line of their budgets. Invite your board to look at the income line of those same budgets. You'll justify your salary.
Alan Sharpe publishes Direct Mail Fundraising Today, the free, weekly email newsletter that helps nonprofit organizations raise funds, build relationships and retain loyal donors. Alan is the author of Breakthrough Fundraising Letters and 25 handbooks on direct mail fundraising. Alan is also a speaker and workshop leader who delivers public seminars and teleseminars on direct mail fundraising. Sign up for Alan's newsletter at www.RaiserSharpe.com.
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