“Fundraising Cost Effectivenessand Performance Measurement”

By: James M. Greenfield, ACFRE, FAHPJ.M. Greenfield & AssociatesNewport Beach, California

AFP CA Orange County ChapterEducation SessionOctober 25, 2011

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“Fundraising Cost Effectivenessand Performance Measurement”

How Measuring Fundraising Performance Demonstrates Effectiveness and Efficiency

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How Important is Fundraising Efficiency to Donors and Prospects?

“Prospective donors were more likely to make a contribution when efficiency measures were provided directly with requests for funds.”

“An average donation was greater when information about service efforts and accomplishments was provided.”

Source: L.M. Parsons, “The Impact of Financial Information and Voluntary Disclosures on Contributions to Not-for-Profit Organizations: A Field-Based Experiment.” Bauer College of Business, University of Houston, 2001.

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“How was my gift money used?”

“Nearly half of the respondents said that how much the recipient organizations spend on administration and fundraising influences their giving decisions.”

V. Staley, Study: Americans Confident in Charities’Integrity.” Chronicle of Philanthropy, September 10,

1998, pp. 5-12.

“79 percent of respondents in this study say it is very important to know the percentage of spending that goes toward charitable programs.”

“Better Business Bureau Wise Giving Alliance Donor Expectations Survey”, Princeton Survey Research

Associates, 2001.

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What High Net-World Households

Think about their giving?

“Wealthy donors say they are willing to give more than they do. Nearly 75 percent of the donors said charities that spend less on administrative costs could reap additional contributions.”

“And 58 percent said donations could also increase if charities showed donors the results of their gifts.”

Source: Nicole Lewis, “Half of Affluent Americans Say Tax Policy Doesn’t Affect Their Giving.” Chronicle of Philanthropy, November 9, 2006, p. 14. Article based on Bank of America study of High Net-Worth Households conducted between June-September 2006 by the Center on Philanthropy at Indiana University. For the Bank of America full report, see the following: http://newsroom.bankofamerica.com/index.php?s=press_kit&item=63

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Session Discussion Topics:

1. Performance Measurement Criteria

A. Annual Giving Programs

B. Major Gift and Capital Campaign Programs

C. Planned Giving Programs

2. Budgeting and Forecasting Fundraising Programs

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How to Measure Fundraising Results? Performance Measurement Criteria:

1. Number of solicitations2. Number of participants3. Gross revenue4. Expenses- - - - - - - - - - - - - - - - - - - - 5. Percent participation6. Average gift size 7. Net revenue8. Average cost per gift9. Fundraising cost10. Return on expense

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How to Measure Fundraising Results?Performance Measurement Criteria

Basic Data

Number of solicitations = Number of direct requests madeNumber of participants = Number of donors responding with giftsGross revenue = Value of gifts and contributions receivedExpenses = Amount of fundraising budget spent- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Performance Measurements

Percent participation = Divide participants by total solicitations Average gift size = Divide revenue received by participantsNet income = Subtract expenses from revenue receivedAverage cost per gift = Divide expenses by participantsFundraising cost = Divide expenses by revenue Return on expense = Divide net income by expenses; multiply

by 100 for percentage rate of return

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What are Fundraising’s Expense

Categories?

Direct Costs: Actual expenses to carry out each solicitation method, e.g. printing, postage, meeting space & equipment rentals, food & beverages, entertainer fees, travel expenses, telephone, computer usage fees, etc.

Indirect Costs: Staff salaries and benefits, overtime, meetings, computer equipment and software, Internet access and usage fees, data processing, gift processing and gift reports, donor recognition and communications, newsletters and brochures, annual reports, supplies, telephone, travel, education and training, consultants, purchased services, etc.

Overhead Costs: Electricity, heat, insurance, rent, water, depreciation assessments, etc.

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What are Reasonable Cost Guidelines?(after 3 to 5 years of operations)

Solicitation Activity Reasonable Cost Guidelines

Direct Mail (acquisition) $1.25 to $1.50 per $1.00 raisedDirect Mail (renewal) $0.20 to $0.25 per $1.00 raisedMembership programs $0.20 to $0.30 per $1.00 raised

Benefit events * $0.50 per $1.00 raised *Donor clubs/support groups $0.20 to $0.30 per $1.00 raisedVolunteer-led solicitations $0.10 to $0.20 per $1.00 raisedCorporate solicitations $0.20 per $1.00 raisedFoundation solicitations $0.20 per $1.00 raisedCapital campaigns $0.10 to $0.20 per $1.00 raisedPlanned giving programs $0.20 to $0.30 per $1.00 raised

* (gross revenue and direct costs only)

Source: James M. Greenfield. Fundraising Responsibilities of Nonprofit Boards. BoardSource (Governance Series, #4) Second Edition, 2009, p. 54.

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Performance Measurement Criteria“Why Do Fundraising Costs Vary?”

1. “The popularity of the cause or issue2. The organization’s age3. The fund raising methods used4. How much money the organization raises5. The skills and experience of the

development department6. Competition7. The character of the constituency8. The charisma of the leader9. The zeal of the fundraiser”

Source: Mal Warwick, “The Five Strategies for Fund Raising Success.” San Francisco: Jossey-Bass Publishers, 2000, pp. 254-256.

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Performance Measurement Examples

Annual Giving Programs

1. Results Analysis of Direct Mail Program

2. Results Analysis of Membership Program

3. Results Analysis of Benefit Events

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Results Analysis of aFirst-Time Direct Mail Effort

Full FirstTesting Mail Out Renewal Totals

Number of solicitations 80,575 396,467 1,156 478,198 Number of participants 1,156 3,653 914 5,723Gross revenue $35,758 $116,911 $31,064 $183,733Expenses $32,641 $ 99,000 $ 1,827 $133,468- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Percent Participation 1.43% 0.92% 79% 1.20%Average gift size $30.93 $ 32.00 $33.99 $32.10Net income $3,117 $17,911 $29,237 $50,265Average cost per gift $28.24 $27.10 $2.00 $23.32Fundraising cost $0.91 $0.85 $0.06 $0.73Return on expense 10% 18% 1,600% 38%

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Results Analysis of an Active Membership Program

New Renewal Upgrading Total

Number of Solicitation 4,250 650 650 5,550

Number of participants 125 525 68 718

Gross revenue $12,900 $58,500 $20,000 $91,400Expenses $8,500 $3,280 -n/a- $11,780- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Percent participation 4.17% 80.77% 10.46% 31.80%Average gift size $ 103 $ 111 $ 294 $ 169Net income $4,400 $55,220 $20,000 $79,620Average cost per gift $68.00 $6.25 -n/a- $16.41Fundraising cost $0.66 $0.06 -n/a- $ 0.13Return on expense52% 1,684% -n/a- 676%

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Results Analysis of Annual Benefit Events

Golf Black-Tie Tournament Dinner Totals

Number of Solicitation 3,750 8,650 12,400Number of Participants 180 450 630Gross revenue $ 83,250 $159,336 $242,586Expenses $ 27,444 $ 92,651 $120,095

Percent participation 21% 19% 20%Average gift size $ 462.50 $ 354.08 $ 385.06Net income $ 55,806 $ 66,685 $125,491Average cost per gift $ 153 $ 206 $ 191Fundraising cost $ 0.33 $ 0.58 $ 0.50Return on expense 203% 72% 105%

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Summary Report

Results Analysis for Annual Giving Programs

Direct Membership Benefit Mail Program

Events Totals

Solicitations 478,198 5,550 12,400 496,148Participation 5,723 718 630 7,071Gross Revenue $183,733 $91,400 $242,586 $517,719Expenses $133,468 $11,780 $120,095 $265,343

Percent participation 1.2% 16.2% 20% 12.5%Average gift size $ 32 $127 $385 $181Net income $50,265 $79,620 $125,491

$254,376Average cost per gift $23 $16 $191 $92Fundraising cost $0.73 $0.13 $0.50 $0.51Return on expense 38% 676% 105% 273%

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Performance Measurement Criteria

Major Gifts and Capital Campaign Programs

Researching Major Gift Prospects Monitoring Major Gift Activities Monitoring Major Gift Performance Results Analysis of Major Gift Program Results Analysis of Capital Campaigns

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Research Activities for Major Gift Prospects

2010 2011

Number of major gift prospects 135 155 being researched

Number of major gift prospects 77 108 qualified from research

Number of trained/experienced 24 46personal solicitation volunteers available for assignmentNumber of prospects assigned 47 86

to trained volunteers

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Monitoring Major Gift Activities

Cultivation Plans and Solicitation Strategies

2010 2011

Number of prospects with cultivation plans 33 72 Number of prospects with volunteer teams 27 68 Number of teams engaged in cultivation 12 48 Number of teams in active solicitation 15 20 Number of major gift donor decisions 6 14 Number of major gift rejections 5 20 Value of major gifts received $225K $665K Value of major gift pledges received $100K $300K

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Monitoring Major Gift Activities

Donor Recognition and Donor Stewardship

2010 2011

Number of donor recognition events 4 12 in progress

Number of recognition events completed 2 8 Number of donor stewardship plans 2 4

in preparation Number of six-month reviews conducted 2 4 Number of six-month reviews scheduled 2 8

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Results Analysis for Major Gifts Program

2 yrs Last This Cum. Ago Year Year Totals

Number of participants 12 18 23 53Gross revenue $172,500 $215,000 $358,000 $745,500Expenses $ 16,850 $ 18,200 $ 18,900 $ 53,950- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Percent Participation 33% 46% 53% 45%Average gift size $ 14,375 $ 11,944 $ 15,565 $ 14,066Net income $155,650 $196,900 $339,100 $691,550Average cost per gift $ 1,404 $ 1,011 $ 822 $ 1,018Fundraising cost $ 0.10 $ 0.08 $ 0.05 $ 0.07Return on expense 924% 1,081% 1,794% 1,282%

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Results Analysis of Capital Campaigns

#1 #2 #3

Number of participants 1,422 6,075 11,829Gross revenue $880,000 $1,089,450 $23,450,000Expenses $107,550 $ 259,650 $ 1,875,750- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Percent participation 59% 48% 77%Average gift size $619 $179 $1,982Net income $772,450 $829,800 $21,574,250Average cost per gift $76 $43 $159Fundraising cost $0.12 $0.24 $0.08Return on expenses 718% 320% 1,150%

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Performance Measurement Criteria

Planned Giving Programs

Monitoring Activity in Planned Giving Results Analysis in Planned Giving Accountability for Planned Giving

Performance

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Monitoring Activity in Planned Giving

Number of Contacts Stimulated by: Meetings Contacts GiftsNewsletters/Annual Report requests 26 6 1Direct mail requests for information 155 18 2Seminar/workshop attendees 255 39 3Board members referrals 8 6 0Development committee referrals 12 6 1Annual gift committee referrals 33 18 2Major gift committee referrals 14 6 1Planned gift committee referrals 6 0 0Current planned gift donor referrals 6 4 2Other contacts: 4 1 0

Totals: 519 104 12

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Monitoring Activity in Planned Giving

New Planned Gifts Completed

Number Donor Age Value (FMV)

Will/Living Trust 2 72 - 79 $300,000

Pooled fund 1 65 25,000Remainder unitrust 1 75/73 250,000Annuity trust 3 68 (avg.) 250,000Gift annuity 3 66 (avg.) 85,000Charitable lead trust 0 0 0Life estate 1 82/80 750,000Life insurance policy 1 72/70 50,000

Totals: 12 72 (avg.) $1,710,000

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Results Analysis In Planned Giving

(000 omitted) Yr 1 Yr 2 Yr 3 Totals

Number of Donors 8 9 12 29

Gift Values (FMV) $165 $1,295 $1,710 $3,170Expenses $129 $ 165 $ 182 $ 436--------------------------------------------------------------------------------

----Percent Participation 38% 61% 42% 47%Average gift size $20.6 $143.9 $142.5

$109.3Net income $36 $1,130 $1,528 $2,734Average cost per gift $ 16 $ 18 $ 15 $ 15Fundraising cost $ 0.78 $ 0.13 $ 0.11 $ 0.14Return on expense 28% 685% 840%

627%

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Summary Performance: “Bottom-Line Analysis”

2 yrs Last This Ago Year Year

Direct Mail $127,585 $149,889 $183,733 Membership 68,800 76,450 91,400 Benefit Events 198,555 239,545 242,586

Major Gifts 172,500 215,000 358,000 Capital Campaign 198,000 380,500 880,000 Planned Giving 165,000 1,295,500 1,710,000 Gross Revenue: $930,440 $2,356,884 $3,465,719

Minus FR Budget $379,240 $433,101 $559,793

Net Revenue $551,200 $1,923,783 $2,905,926

Fundraising Cost $0.41 $0.18 $0.16 Return on Expense 145% 449% 519%

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Summary Multi-Year Report: Overall “Growth in Giving” Analysis

Annual Annual Cum.(ooo omitted) 2 Yrs Last Rate This Rate Growth Ago Year % Year % %

Participation 1,355 1,605 18 1,799 12 31Gross revenue $ 448 $ 507 13 $ 571 12 26Expenses $ 116 $ 123 6 $ 131 7 13

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Percent Participation 39% 44% 13 52% 18 31Average gift size $ 331 $ 316 -4 $ 318 0.4 -4Net income $ 332 $ 384 16 $ 439 14 30Average cost per gift $ 86 $ 76 -11 $ 83 -5 -15Cost of fund raising $0.26 $0.24 -6 $0.23 -5 -11Return 285% 311% 9 333% 7 16

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2. Budgeting and Forecasting Fundraising Results

2 yrs Last Current Budget Ago Year Year Request

Labor cost $66,009 $74,164 $79,778 $85,250Non-labor cost 43,594 50,026 51,326 55,000 Total budget $109,603 $124,190 $131,104 $140,250

Gross revenue $342,738 $563,384 $603,100 $660,000Minus budget - 109,603 -124,190 -131,104 - 140,250

Net income $233,135 $438,194 $471,996 $519,750

Fundraising cost $0.32 $0.22 $0.22 $0.21

Return on expenses 213% 354% 360% 371%

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Forecasting Gift Results(Three Year Summary Results)

1. Annual Giving Programs Est.

2 yrs Last This Next Ago Year Year

Year

Direct mail (new) $27,550 $31,250 $35,500 $42,000Direct mail (renew) 55,880 69,500 76,500 85,000Membership dues 40,400 44,000 48,500 55,000Benefit events (3) 45,500 53,400 59,600 68,000Volunteer-led solicitation 58,500 65,500 82,000 90,000

Sub-Total: $227,830 $263,650 $302,100 $340,000

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Forecasting Gift Results(Three Year Summary Results)

Est.2 yrs Last This Next

Ago Year Year Year1. Annual Giving Programs

Sub-Totals: $227,830 $263,650 $302,100 $340,000

• Major Gifts Programs

Corporations $13,500 $28,000 $45,500 $55,000Foundations 8,000 35,500 65,000 80,000Individuals 35,000 78,000 145,000 160,000Bequests received 5,000 25,000 45,000 25,000

Sub-Totals: $61,500 $167,500 $301,000 $320,000 --------------- -------------- ---------------

----------------

Grand Total: $289,330 $431,150 $603,100 $660,000

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Forecasting Gift Results Summary Budget Proposal:

Annual and Major Gifts Programs

2 yrs Last This Est. Next Ago Year Year Year

Gross Revenue $289,330 $431,150 $603,100 $660,000

Direct costs $ 68,015 $ 72,100 $ 79,778 $ 85,250Indirect costs 29,550 46,225 51,326 55,000

Sub-Total: $107,565 $118,325 $131,104 $140,250

Net Income: $181,765 $312,825 $471,996 $519,750

Fundraising costs $0.37 $0.27 $0.22 $0.21Return on expense 169% 354% 360% 371%

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Forecasting Gift Results

Estimated Results Analysis #1

1. Gross revenue increased $53,7652. Net income increased $47,8903. Fundraising cost increased to $0.234. Return on expense decreased from

$369% to 338%

What if we asked for another $10,000 for this fundraising budget?

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Forecasting Gift Results

2 yrs Last Current Budget Ago Year Year

Request

Labor cost $66,009 $74,164 $ 80,165 $85,259Non-labor cost 43,594 50,026 54,210 65,000Total budget $109,603 $124,190 $134,375 $150,259

(+ $15,884)

Gross revenue $342,738 $507,855 $561,235 $700,000Minus budget - 109,603 -124,190 -134,375 -150,259

Net income $233,135 $383,665 $426,860 $549,741 (+ $122,881)

Fundraising cost $0.32 $0.24 $0.21 $0.21Return on expenses 213% 309% 369% 366%

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Forecasting Gift Results

Estimated Results Analysis #2

1. Gross revenue increased from $561,235 to $700,000

2. Net income increased from $426,860 to $549,741

3. Fundraising cost decreased from $0.23 to $0.21 4. Return on expense increased from 338% to

366%

Should we invest more budget in fundraising?

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Forecasting Gift Results

Should we invest any more budget in fundraising?

Answer:

“The reality is that most institutions aren’t spending enough on fundraising because their leaders fear public criticism or donor backlash. We need to talk instead about why institutions are under-investing in themselves. That’s the real challenge.”

Source: Scott Jaschik, “Price Check” in CASE Currents, January 4, 2005, p. 31.

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“Fundraising Cost Effectivenessand Performance Measurement”

In Summary:

1.Fundraising analysis is necessary2.Fundraising results will be varied

3.Forecasting results can be measured4.Forecasting results can be predicted

5.Results analysis can demonstrate efficiency6.Results analysis can demonstrate

effectiveness

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