“Fundraising Cost Effectivenessand Performance Measurement”

“Evaluating Fundraising Effectiveness”

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

– AFP CA Orange County Chapter– Luncheon Presentation – October 25, 2011

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“Evaluating Fundraising Effectiveness”

Is this session about fundraising performance?

Or Is it about answers to this

question?

“WHAT DID YOU DO WITH MY MONEY?”

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How Important is this Question to Donors and Prospects?

“Nearly 60 percent of Americans believe that a charity should return a donor’s money if the organization intentionally ignores what the donor wanted done with the money”

“Ninety-seven percent of Americans say that if charities spend donations on unauthorized projects, that would be a “serious matter.”

Source: Harvey Lipman “Americans Don’t Want Gifts Used for Purposes They Haven’t Approved.” Report on International survey in the Chronicle of Philanthropy, December 16, 2005.

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Charities Treatment of Donors:What They Want in Return for Giving?

“Large majorities said that they would continue to give – even increase their contributions over time – if they received prompt acknowledgments of their gifts, confirmation that their gifts were used as they intended, and provided evidence of measurable results of what their donations had achieved -- all before they were asked for more money.”

Source: Penelope Burk, Cygnus Applied Research study, as reported in The Chronicle of Philanthropy, November 23, 2006, p. 22.

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What did High Net-World Households think about their giving in 2006?

“High net-worth households also told us that they would give more to charity if they were able to determine the impact of their gifts, if they felt more financially secure, and if they received a better return on their financial investments.”

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. See:http://newsroom.bankofamerica.com/index.php?s=press_kit&item=63

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What do High Net-World Households think about their giving in 2010?

“Wealthy households reported that they give when they believe their gift will make a difference (72.4%), when they feel financially secure (71.2%), and when they know the organization is efficient in its use of donations (71%). Another major factor was the organization’s communications about the percentage of funding going to programming versus administration (54.1%). In addition, about one-third of households cited an organization’s own communications about its impact (34.1%) as important when giving to charity.”

http://www.philanthropy.iupui.edu/Research/docs/2010BAML_HighNetWorthPhilanthropy.pdf

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What do High Net-World Households think about their giving in 2010?

“Between 2007 and 2009, average charitable giving dropped 34.9% from $83,034 in 2007 to $54,016 in 2009. This drop in giving had the largest impact on health organizations. Average giving to health decreased from $12,430 in 2007 to $4,511 in 2009, a 63.7% difference. Health giving as a share of all high net worth giving dropped from 10.4% to 6% across the two studies.”

http://www.philanthropy.iupui.edu/Research/docs/2010BAML_HighNetWorthPhilanthropy.pdf

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How Important are these issues to all Donors and Prospects?

“According to Great Nonprofits' donor survey, community reviews of nonprofit affect giving. More than 90 percent of donors say that the reviews written by clients served, volunteers, and other donors help them understand the nonprofits' work better. More than 80 percent said reviews influence their giving decisions.”

Source: Guidestar Newsletter, October 20, 2011: messagesatguidestar.org

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“Evaluating Fundraising Effectiveness”Session Topics

1. How are your fundraising results measured now? By whom? What are the results they focus on?

2. How is your performance evaluation conducted now? By whom? What result(s) does it focus on most?

3. What is the amount of CFO involvement in your budget preparation? What fiscal guidelines do they use?

4. What is the amount of board involvement in evaluating fundraising results? What measurement

criteria do they use? Do they compare your performance with others? Which others? Using which criteria?

5. What outcomes does your organization measure about the results of its programs and services?

6. How does your organization report its outcomes?

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How do you Evaluate Fundraising Effectiveness?

1. How do you conduct your own results analysis and performance evaluations now?

2. What do you measure yourself against?3. Do you compare current results with prior

years performance?4. Does your analysis demonstrate program

effectiveness as well as cost efficiency?5. What other criteria and/or data do you use

to demonstrate your success?6. Based on your analysis, can you forecast future

fundraising results? Do you think anyone believes your estimated figures?

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“Evaluating Fundraising Effectiveness”

Why are fundraising costs such an issue? Why are fundraising results so varied?

1. There is no uniform national “standard” or performance guideline for fundraising by nonprofit organizations;

2. FASB and AICPA joint-cost guidelines are not precise;

3. Auditors sometimes use a flat percentage to calculate fundraising expenses as reported on IRS Form

990;

4. Benchmarking uses similar data from similar organizations to establish profiles of performance, not guidelines

5. Organizations do not conduct fundraising the same, and fundraising does not perform the same for all

organizations.

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What does AFP say about Fundraising Costs?

“Accountability of organizations to their constituencies has become one of the most important aspects of good governance in both the nonprofit and private sectors of our economy.  In the charitable sector there is public interest in the effectiveness of organizations and efficiency of raising funds.  The media has contributed to this interest through well intended reports to inform the public about fundraising costs.  Often these reports are oversimplified and sensationalized, focused more on keeping cost ratios as low as possible (efficiency) rather than on maximizing net revenues to achieve the organization's mission (effectiveness).”

Source: http://www.afpnet.org/HotTopic/FundraisingCosts

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What about standards and guidelinesfrom Charity Navigator, BBB and others?

(See separate handout)

American Institute of Philanthropy

“Criteria”

Better Business Bureau’s “Wise Giving Guide”

“Standards for Charity Accountability”

“Standard #9: Spend no more than 35%

of related contributions on fund raising.”

Charity Navigator

“How Do We Rate Charities”

Evangelical Council for Financial Accountability

“Seven Standards of Responsible Stewardships”

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“Evaluating Fundraising Effectiveness”

How does the AFP Foundation compare?(IRS Form 990 data: FY 2007 - 2009)

FY2007 FY2008 FY2009

Contributions and grants $1,311,230 $777,809 $993,786Investment income 64,733 - 70,764 - 35,594Other revenue 87,701 46,659 151 Total revenue $1,463,664 $753,704 $955,343 Total Fundraising expenses $355,704 $419,080 $132,047

Fundraising cost-ratio $ 24.3 $ 55.6 $ 13.8

Sources: IRS Form 990 (FY07/08): Part I, p. 1, lines 1b, 5, 8d, 12, 15. IRS Form 990 (FY09), Part I, p. 1, lines 8, 10, 11, 12, 16b.

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“Evaluating Fundraising Effectiveness”

How should fundraising results be evaluated? By fundraising cost? By net income? By return on investment (ROI)? By meeting board goals and objectives?

If you had a preference, which would you use?

How should fundraising staff be evaluated?By dollars raised? By staying within budget?

By numbers of new donors acquired? By numbers of prior donors renewed?

By net income for annual budget priorities?

If you had a preference, which would you use?15

“Evaluating Fundraising Effectiveness” Measurement Criteria for Results Analysis

1. Number of direct solicitations2. Number of participants responding3. Gross revenue received4. Expenses required- - - - - - - - - - - - - - - - - - - - 5. Percent participation6. Average gift size 7. Net revenue8. Average cost per gift9. Fundraising cost10. Return on expense

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“Evaluating Fundraising Effectiveness” How to do the Math?

Basic Data

Number of solicitations = Number of direct requests for giftsNumber of participants = Number of donors responding with giftsGross revenue = Value of gifts and contributions receivedExpenses = Fundraising budget required

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

Performance MeasurementsPercent 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

Source: James M. Greenfield. Fundraising Fundamentals: A Guide to Annual Giving for Professionals and Volunteers. Second Edition. John Wiley & Sons, Inc., 2002 p. 499.

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What are fundraising’s expense categories

“Direct Costs: Printing, postage, meetings, equipmentrentals, food and beverages, entertainer fees, travel expenses, telephone, consultants and other purchased services, office equipment, donor recognition, and so

on.

Indirect Costs: Staff salaries and benefits, overtime, meeting support, legal and accounting, computer and Internet use fees, data processing, donor communications, staff education and training, gift processing and gift reports, newsletters and brochures, office furnishings and supplies, and so on.

Overhead Costs: Electricity, heat, insurance, rent, water,depreciation assessments, and so on.”

Source: James M. Greenfield. “Budgeting for Fundraising and Evaluating Performance” Ch. 31 in Achieving Excellence in Fundraising. Third Edition. Eugene R. Tempel, Timothy L. Seiler and Eva E Aldrich, Editors. Jossey-Bass, A Wiley Imprint. 2011, p. 353.

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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. “Budgeting for Fundraising and Evaluating Performance” Ch. 31 in Achieving Excellence in Fundraising. Third Edition. Eugene R. Tempel, Timothy L. Seiler and Eva E Aldrich, Editors. Jossey-Bass, A Wiley Imprint.

2011, p. 353.

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Summary Results: Multi-Year Gift 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

Where are we demonstrating efficiency? On being effective?

Source: James M. Greenfield. Fund raising Responsibilities of Nonprofit Boards. BoardSource. Governance Series, #4, 2nd edition, 2009, p. 56-57.

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“Evaluating Fundraising Effectiveness”

Question:

Should we invest 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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What about “Benchmarking”?

Characteristics of Benchmarking Analysis

1. Criteria for selecting data to use in quality/operational performance

2. Processes and technologies to use to assure that information collected is reliable, consistent, valid, and readily accessible

3. Processes in place to evaluate and improve the data systems4. Once benchmarking process us established, data are used to

establish stretch targets5. Comparative data valid for product and service quality

analysis6. Translate all usable information to support periodic reviews,

decisions, and future planning and goal setting7. Use all data to set priorities for improvement actions

Source: Tracy Daniel Connors, “The Self-Renewing Organization,” in The Nonprofit Handbook: Management. Second Edition. New York: John Wiley & Sons, Inc. 1997.

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What about “Benchmarking”?

Seven Easy Steps for Effective Benchmarking

1. Conduct a self-assessment/internal audit2. Identify metric measures for tracking performance3. Assemble the benchmarking team4. Collect consistent multi-year data5. Evaluate performance and report results6. Incorporate analysis into new plans7. Focus on continuous quality improvement

Source: Jason Saul, “Benchmarking for Nonprofits: How to Replicate What Works.” Chicago: Wilder Foundation Press, 1999. (NCNB Newsletter, vol. 8, #2, February 1999, p. 3)

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What about “Benchmarking”?

Measuring Effectiveness

“An organization should regularly assess its effectiveness in achieving its mission. This section seeks to ensure that an organization has defined measurable goals and objectives in place and a defined process to evaluate the success and measure the impact of its programs in fulfilling goals and objectives of the organization, and that also identifies ways to address any deficiencies.”

Source: Standards for Charity Accountability, Better Business Bureau Wise Giving Guide, Standard #6, #7.

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Do you link your current requests for public gift support to high priority community

needs?

How does your organization use donor’s money?

Increased public access to programs and services that meet defined community needs;

Assisted and protected vulnerable populations; Identified and cared for the indigent; Identified new programs that served the highest

priority of community needs; andCollaborated with other nonprofits to address

locally-identified priority needs.

Can you quantify each of these results?Can you measure their outcomes?

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What about Measurable Outcomes? Can you define Community Benefits?

The “outcomes movement” is really about improving the strategy, substance and

quality of what is being funded and reporting its results.

It is also about preserving and enhancing public confidence and trust in what we say

and what we do with our donor’s money.

It is not about fundraising effectiveness ….

It is all about your organization’s “Accountability”

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How do you demonstrate “Accountability”?

1. Has the organization made a measurable difference in the life of the community?

2. Can you measure the results of your mission through how your programs andservices performed?

3. Is your organization affecting change?4. Is change a benefit to the community?5. Has change improved the quality of life?6. Can you demonstrate how your organization

has made a difference from both the quality and quantity of its programs and services?

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Accountability : The new “bottom line”

1. Can you demonstrate Productivity as well as Efficiency and Effectiveness?

2. Can you demonstrate Positive Growth achieved with a Cost-Effective Performance?

3. Can you demonstrate Outcomes that deliverQuantifiable Benefits to the

Community?4. Can you demonstrate Accountability to your

Mission, Vision and Values?

The answers are your new “Case for Giving”

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Community Benefits

Community Needs Assessment

Internal Audits & Long-Range Plans

Operating & Strategic Plans

Fundraising

Stewardship of All Funds

Programs& Services

Measurable Outcomes

Additional Resources

Ask Google: “Fundraising Performance Measurement”

AFP “Fundraising Effectiveness Project” (2004-2005 survey)http://blog.giftworksconnect.com/files/FEPpaperAFPconference.pdf

AFP “2011 Fundraising Effectiveness Survey Report” with The Urban Institutehttp://www.urban.org/publications/412389.html

http://www.afpnet.org/Audiences/ReportsResearchDetail.cfm?ItemNumber=3113

“Study of Administrative and Fundraising Costs” www.coststudy.org

“Are You Getting Your Money's Worth from Your Fundraising Staff?” www.malwarwick.com/learning.../are-you-getting-your-moneys.html

“Performance Metrics for Development Office”www.slideshare.net/edamuti/performance-metrics-091709

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“Fundraising Cost Effectivenessand Performance Measurement”

“Evaluating Fundraising Effectiveness”

DiscussionQuestions/Answers

Thank You

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