Jeff Buchanan analyses the return on investment of different types of fundraising activities and reveals the important questions nonprofits should ask about their program’s mix and balance.
Fundraising, when conducted properly, should produce profitable results. This expectation is stated as ”fundraising should deliver a high return on investment (ROI)”, or ”the cost of fundraising should be as low as possible”. After all, every donor or sponsor wants to see as much of their support as possible reach the coalface.
But how high should the return on investment be? Or put another way, what is an acceptable level of cost?
When the question is posed “What ROI should be achieve from fundraising?”, the answer should be “It depends on the type of fundraising activity involved”. Not all fundraising activities have the same cost or same ROI. So discussions about always keeping a cost of fundraising below some kind of attractive, lower percentage – say 20% – can be very unhelpful and ignorant of reality.
While the type of fundraising activity is one key factor, the ROI you achieve will also depend on level of investment, staff capability, communication effectiveness, the favourability of supporter response, timing, and what constitutes a ‘good’ return for other particular circumstances in play.
The most successful fundraising programs have an appropriate diversity and balance of fundraising activity types, with action plans to maximise the ROI of each one. Some activities (e.g. art unions) are comparatively expensive and require significant investment, yet still deliver a good return when conducted properly – better than any bank or finance company can offer!
Should a nonprofit be criticised for investing $10 million per annum in lottery activities that generate $14 million in revenue? In news headlines that would be a shocking 71.4% cost of fundraising! But actually this is a 40% ROI and in line with the returns of well-established lottery activities – and most importantly, it is $4 million that a nonprofit can put to good use to achieve its mission.
What returns do specific activities yield?
There are few reliable sources of information on fundraising results across various activities over time. With this in mind, AskRIGHT (formerly Global Philanthropic) has gathered data ranging back as far as 10 years from the publicly available financial statements of 21 nonprofits established in NSW. Under NSW state law (Charitable Fundraising Act 1991), some nonprofits are required to report on the income and expenses of their different fundraising activities.
Table A shows the results of our analysis for the ROI on $1 for types of fundraising activities. These results should trigger discussions at board and staff meetings about the type, size and scope of investments being made (or not) within a fundraising program.
Two questions for nonprofits to ask are: “Does our organisation make sufficient investment in the most profitable types of fundraising activities such as bequests and major gifts?” and “Is our organisation over-invested in fundraising activities (such as events and direct mail) that are usually more resource-intensive?”
All types of fundraising activities are important for reasons beyond the money they raise. But good governance is also about facilitating the best strategy to achieve the most productive balance and performance of fundraising activity. Perhaps any potential disparity in fundraising investment, an unbalanced program or a long-term trend of under-performance, is being disguised by reasonably moderate results and an unchecked acceptance of other factors.
Lower rate ROI activities such as direct mail, events and art unions, are understandably attractive. They produce results reasonably quickly (days or weeks). They feel more tangible to organisational leadership. Projects can be presented well. Results are relatively easy to measure, and they give every person with a view about marketing something to debate!
Higher rate ROI activities such as major gifts and bequests are usually less attractive. These take months or years to produce results. The development of donor relationships may be seen as less tangible to organisational leadership. Projects must be discussed at length. Results are unpredictable. More diverse engagement skills and more board and senior leadership involvement is required. Measurement of progress is not as straightforward as other types of activities. And in general, people are impatient.
When do low-ROI activities cause problems?
There is nothing wrong with lower rate ROI activities – unless they are the only activities being pursued. With each type of fundraising activity, there are other important factors to consider such as:
- The initial level of investment to establish a particular type of activity
- The skill levels of the staff and key volunteers involved
- The example and support of board members and senior staff
- The stage of development of the activity (new, reactivated, needing improvement, needing an overhaul, etc.)
- The place of the activity in balance with other fundraising activities in your program given your resources and circumstances
What should you do with this information?
Take the opportunity to have an important discussion at all levels (including board-level) on questions such as:
- Do you know what the return on investment is for your organisation’s different fundraising activities?
- Are you confident you have the right mix of activities?
- Could your organisation be under-investing or over-investing in particular fundraising activities?
- Are some fundraising activities not being utilised that should be?
Table A: ROI on $1 for different fundraising activities
Type of Activity
Average Return Each Year
Direct Mail Appeals
Lotteries and Art Unions
* Cumulative so all data is included
Jeff Buchanan is senior fundraising consultant at AskRIGHT (formerly Global Philanthropic). E-mail [email protected] for a full report.
Main image courtesy of Stuart Miles at FreeDigitalPhotos.net