What should you consider when calculating the cost-benefit analysis of fundraising?
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Fundraising is a vital activity for many nonprofits, social enterprises, and community projects. But how do you know if your fundraising efforts are worth the time, money, and resources you invest in them? One way to answer this question is to conduct a cost-benefit analysis of fundraising, which compares the costs and benefits of different fundraising strategies and tactics. In this article, we will discuss what you should consider when calculating the cost-benefit analysis of fundraising, and how it can help you optimize your fundraising performance.
Before you start your cost-benefit analysis, you need to define your goals and metrics for fundraising. What are you trying to achieve with your fundraising? How will you measure your success? What are the indicators of your impact and return on investment? For example, you might have goals such as increasing your donor base, raising a certain amount of funds, or improving your donor retention. Your metrics might include the number of donors, the average donation size, the donor acquisition cost, the donor lifetime value, or the fundraising ratio.
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Jim Batten
Principal at The Batten Group
Goal setting is critical but very hard. In my years as CEO and Executive Director, we always walked a fine line with staff and volunteers to see what was realistic, impactful, efficient, and effective. Emotions and personalities are important to respect and navigate through. Always consider what is best for today and in the future. Does your golf event that has a high cost and low net result in cultivating major and legacy giving? How do you justify spending dollars today for impact tomorrow? There are no easy answers and every organization has a different capacity for risk and measures outcomes in different ways. Remember to look at the real cost of doing business. What is a good and acceptable ROI for your organization?
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Maria Clark
EVP of Partnerships and Chief Evangelist at GoodUnited
Goals and metrics should always have a benchmark to compare against, not exist in a vacuum. Whether against industry standards from M&R annual report, or other fundraising strategies internally, it is imperative to determine success in an objective way. This will ensure smart decision making and the right investment going forward, to deliver the most to your organization
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Kellie Yackley, MSA, CFRE
Community Giving Officer at Avera Health
Another important aspect of goal setting is what the action supports. Is it realistic to build a pipeline of legacy gift donors at a gala or golf event? Is it more realistic to look at a pipeline for annual and mid-level multi year gifts? If you are realistic in the intent, your goal will be easier to measure.
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Next, you need to estimate your costs for fundraising. This includes both direct and indirect costs, as well as fixed and variable costs. Direct costs are the expenses that are directly related to your fundraising activities, such as printing, mailing, advertising, or event hosting. Indirect costs are the overhead expenses that are not directly related to fundraising, but support your organization's operations, such as rent, utilities, salaries, or administration. Fixed costs are the costs that do not change regardless of your fundraising volume, such as rent or salaries. Variable costs are the costs that change depending on your fundraising volume, such as printing or advertising.
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Maria Clark
EVP of Partnerships and Chief Evangelist at GoodUnited
Budgeting is critical to provide volunteers and staff the guidance and guardrails needed to return the most to your mission. Estimated costs are just the beginning, and should then fuel your planning. EX: if you need to raise XX$ through ticket sales, what is the plan to sell that number of tickets? If you want to achieve XX$ in sponsorship, how many of each level are needed to hit that goal, etc. It is important to include fixed costs as well, to ensure understanding of the true cost of your event and the new operating profit.
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Muyiwa Ojo
Founder, President and C.E.O at “Food Scheme for African Development Initiative “. Registered and approved in Nigeria 🇳🇬 and the United States 🇺🇸. The organization is 501(C)3 tax exempted.
To estimate costs, consider various elements such as personnel expenses, marketing materials, technology tools, event logistics, and any other expenditures associated with the specific project or initiative. Break down these costs into categories, and factor in both direct and indirect expenses. Additionally, account for potential unforeseen costs by including a contingency budget. Regularly review and update your cost estimates throughout the project to ensure accurate tracking and financial management.
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Then, you need to estimate your benefits for fundraising. This includes both financial and non-financial benefits, as well as short-term and long-term benefits. Financial benefits are the revenues that you generate from your fundraising activities, such as donations, grants, or sponsorships. Non-financial benefits are the intangible outcomes that you achieve from your fundraising activities, such as awareness, engagement, loyalty, or advocacy. Short-term benefits are the benefits that you receive within a specific time frame, such as a campaign or a fiscal year. Long-term benefits are the benefits that you receive over a longer period of time, such as a donor relationship or a social impact.
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Anne Day
Founder of Company of Women and Full Circle Publishing
Sometimes there are hidden benefits. At Rotary, we recently held an event aimed at refugees, providing information to support them as new Canadians. The event was successful in many ways, but what we didn't expect was that two of the attendees would join our club. It was a true bonus.
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Muyiwa Ojo
Founder, President and C.E.O at “Food Scheme for African Development Initiative “. Registered and approved in Nigeria 🇳🇬 and the United States 🇺🇸. The organization is 501(C)3 tax exempted.
Estimating benefits involves identifying and quantifying the positive outcomes or returns associated with a project or initiative. Consider factors such as increased revenue, donor retention, enhanced brand visibility, and the overall impact on your organization's mission. If applicable, measure the non-monetary benefits, such as improved community relations or increased awareness. Regularly monitor and assess these benefits against your goals and metrics to ensure a comprehensive understanding of the positive impact your efforts are generating.
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Finally, you need to compare your costs and benefits for fundraising. This can be done in different ways, depending on your goals and metrics. For instance, the fundraising ratio is the percentage of your costs to your revenues and shows how efficient your fundraising is. The return on investment is the amount of revenues you generate for every dollar you spend and shows how effective your fundraising is. Additionally, the net income is the amount of revenues you generate minus the costs you incur, which indicates how profitable your fundraising is. By analyzing these metrics, you can identify which strategies and tactics are successful, which need improvement, and which are not worth pursuing. This information can be used to plan future activities, allocate resources, and communicate results.
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Anne Day
Founder of Company of Women and Full Circle Publishing
Remember to take the human cost into your analysis. Sometimes the amount of time - by staff and volunteers - means the fundraising return was not worth all the effort and needs to be tweaked to make it more cost effective.
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Muyiwa Ojo
Founder, President and C.E.O at “Food Scheme for African Development Initiative “. Registered and approved in Nigeria 🇳🇬 and the United States 🇺🇸. The organization is 501(C)3 tax exempted.
Comparing costs and benefits involves evaluating the financial investment against the positive outcomes to determine the overall effectiveness of a project or initiative. Calculate the total costs, including personnel, marketing, and technology expenses. Then, assess the benefits, considering increased revenue, donor retention, and broader impacts on your organization's goals. Analyze the return on investment (ROI) by dividing the net benefits (benefits minus costs) by the total costs. A positive ROI indicates that the benefits outweigh the costs, making the initiative financially viable and successful. Regularly review and adjust this comparison as the project progresses.
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