Does your non-profit keep a close eye on the “fundraising return on investment” (fundraising ROI) for its fundraising activities?
Many organizations downplay ROI as a “business concept” that doesn’t really apply to non-profit development. Many more pay lip service to fundraising ROI, but when push comes to shove, they keep holding underperforming events, sending out letters to people who will never give, and taking time away from individual fundraising to spend on grantwriting.
The return you are getting on your fundraising investment matters to your non-profit. Let’s face it… your non-profit probably has very limited time, money, and resources to spend on fundraising. If you are like most non-profits, your development program is probably a zero-sum game: when you add one activity, you have to (or should) stop a different activity because you just don’t have any additional staff time or budget dollars to allocate to fundraising. That’s why getting the highest possible fundraising ROI is essential for your non-profit.
How to Measure Fundraising ROI
Your fundraising ROI is a measure of how much money you raise for each dollar you spend on fundraising. This includes the cost of staff time… many non-profits fail to include staff time in their return on investment calculations, which is a serious mistake, as your staff time can often be a significant investment for some of your development tactics.
Your fundraising ROI is important for figuring out where to spend your non-profit’s limited development budget. For example, if you are raising $10 for every $1 spent on events but $15 for every $1 spent on individual donor cultivation, you may decide to focus your time, energy, and budget on the strategy where you are getting the most bang for your buck (individual donor cultivation).
Fundraising ROI is generally calculated separately for each fundraising tactic. To calculate fundraising return on investment for a given fundraising tactic, subtract the total amount spent on that tactic from the total amount raised, divide the result by the total amount spent on the tactic, and multiply by 100.
Fundraising Return on Investment = [(Total Amount Raised – Total Amount Spent) / Total Amount Spent] x 100
The result will show you your ROI for that tactic (e.g. if the result is 100%, that means you doubled your money, or raised $2 for every $1 you spent on that tactic. If the result is 20%, that means you raised $1.20 for every $1 you spent on that tactic).
Determining Cost of Staff Time
As mentioned above, when determining fundraising ROI, be sure to include staff time when figuring out total amount spent. To easily figure out cost of staff time for employees, ask employees to estimate the total number of hours they spent / spend on a particular tactic.
You can figure out how much it costs you to have an employee working on particular tactic by taking that employees’ total yearly compensation and dividing it by 2,000. That will give you a rough (though not exact) estimate of what you are paying that employee per hour.
For example, if Karen makes $100,000 per year in salary and benefits, you are paying her roughly $50 per hour in total compensation (including taxes). If she spends 40 hours over the course of the year working on your big annual gala event, you are spending $2,000 to have Karen work on that event. When determining the fundraising ROI of the event, you need to add up the total staff costs of all of the employees at your organization who spend time working on that particular event.
Comparing ROI for Various Fundraising Strategies
It is important for your non-profit to have a handle on the fundraising return on investment of its various development strategies. Your leadership team should be comparing fundraising ROI on at least a yearly basis, so that your organization understands how each tactic you are using compares to the other tactics.
For example, your non-profit may be getting a 300% ROI on major donor fundraising, a 210% ROI on your donor clubs, 80% ROI on your events, and 25% ROI on your direct mail program. (Of course these are just examples – the numbers at your non-profit will certainly vary).
Remember that just because a particular strategy has a lower ROI than another strategy, it doesn’t mean you should stop pursuing that fundraising tactic. You may be getting a low ROI on your direct mail program, but perhaps it is feeding your mid-level giving program with new prospects in a way that is hard to capture. Or, maybe your major donor program has a very high ROI, but you are already doing everything you need to be doing / want to be doing with major donors, and thus don’t need to take time and money from other strategies to add resources to your major donor program.
Every non-profit is different. Thus, while it is important to understand your fundraising ROI, you will need to analyze those numbers and make decisions based on your organization’s unique resources, needs, and development plan.
Simple Ways to Increase Fundraising ROI at Your Non-Profit
While every non-profit is different, in general there are two simple ways that nearly every organization can increase its fundraising ROI:
#1: Focus on Individual Donors
Over 70% of all donations made to non-profit organizations come from individual donors, not from corporations or foundations. This means that your non-profit should be placing a heavy emphasis on individual donor cultivation. If you want to increase your fundraising ROI, consider cutting some of your non-individual fundraising activities, including things like grantwriting and corporate fundraising, and use that extra time, money, and bandwidth to focus on individual donor development.
#2: Have a Donor Upgrade Plan in Place
Generally, the more a donor gives, the higher the fundraising ROI is for your non-profit in terms of that individual donor. Thus, many non-profits may spend $50 in cultivation and solicitation costs for a donor that gives $250 per year (meaning they net $200 per year… a 400% ROI… not bad!) but only spend $1,000 in cultivation and solicitation costs for a donor that gives $50,000 per year (meaning they net $49,000 per year… a 4900% ROI… even better!)
Because this is true, your non-profit should have a plan in place to upgrade your donors. This means reviewing your donor lists each year to see who you can move from low-dollar donors to mid-level donors, and who you can move from mid-level donors into major givers. For more information on how to develop donor upgrade strategy at your organization, read: How to Get Your Donors to Give More this Year than Last Year.
Remember, fundraising ROI matters for your non-profit. It is important that your organization determines and analyzes the fundraising ROI for each of your development activities each year, so that you can make informed decisions about where to focus your limited time, money, and energy so that your non-profit can thrive like never before.
Photo Credit: Simon Cunningham