[...] This post was mentioned on Twitter by changefeed and Nell Edgington, givv.org. givv.org said: RT @nedgington: ineffectiveness of #nonprofit #fundraising: http://bit.ly/1Kj9jT – @givv thinx this is why regular monthly giving is the key [...]

This is a really nice piece and it’s really insightful. To extend the thought a bit, the $77k spent can be netted out against the $23k raised to leave about $54k that could have gone to the mission, to marketing, or elsewhere – but in any case is not. In other words, the value of the “intangibles” from the event had better be $54k or higher, or else the event was not a successful one.

At givv.org, we believe there’s another type of donor, and another way to support nonprofits – through small “microgifts” made monthly and automatically to all the organizations a person supports. At Givv.org, a giver sets up one budget, then splits it among as many (1, 10, or 100) nonprofits as she wants.

This means she can support everything she likes, easily, and add and remove new ones with a few clicks. Donors to one organization can easily “spread” the donation to other, similar organizations. This means more giving gets done, and people give.

A nonprofit should be trying to grow donations from both the major donors and the minor donors, simultaneously, so as to have the most stable revenue stream. Microdonors are low-maintenance, and support you regularly without a lot of handholding. Check out givv.org to get the idea.

I couldn’t agree more. We teach nonprofits this fundraising truth in each of our major gifts classes. Special events are most often best left for publicity and prospecting for larger donors. Take a look at my personal blog for complimentary advice. http://excelfundraising.ning.com/profiles/blog/list Thanks for your great article!

Jason,

I agree with you that nonprofits need both small and major donors to survive and thrive. I had not heard of givv, but it sounds like an interesting idea. I love the idea of micro-gifts and micro-philanthropy and think they hold a lot of potential for the sector.

I think the bottomline is that nonprofits need to be analytical and strategic about all of their fundraising efforts in order to ensure that they are making the most efficient use of their resources.

Darryl,

Your series of posts on major gift fundraising are really well done. That’s a great resources, thanks for sharing!

Hi Darryl,

Your point is the reason we created YouGottaCall. It’s our dream to provide not-for-profits with a recurring and self-sustaining stream of revenues with zero cost. Not even postage.

Sound crazy? Maybe. It’s certainly a unique – and patent pending process.

I hope in 6 months we’ll have some serious success to report.

– - Tim

I think you make some excellent points in your posting. I take issue with two things. First, I don’t think you can factor in the time Board members spend as an indirect expense. You are not actually paying them so that is not truly money that needs to be spent. Or, you have to factor in the time of all other volunteers who work on an event as well (which I do not believe you should).

Second, this is a good example when you are talking about an event that is expensive to host (like a gala or a golf outing). Our organization puts on a walk each year and our expenses are relatively low (costs us around $55K including paying a consultant to handle most of the details). Even if you would factor in staff time (which we do not when calculating our net revenue), we still spend less than $100K to generate gross revenue over $350K. This calculation also does not include the community building aspect of our event. We bring out over 3,500 people to a family friendly event that celebrates our organization on one day. The energy generated by the event carries us for months. We gain new donors who become regular supporters and educate hundreds of people about our mission. Not to mention all of the people who raise money on our behalf.

I think events are a double edged sword. If you raise $100,000 (gross) and only end up with $23,000 net, you have probably wasted time and money. But if you host an efficient event with low expenses and significant benefits to the community, you have the potential to be extremely successful.

Benjamin,

Thank you for writing. I appreciate your arguments, and I’d like to drill down on them a bit more. First, you argue that because a nonprofit doesn’t pay board members for their time, that cost should not be factored in to the expenses of the event. Although you are not paying board members cash, there is an opportunity cost to their time. Let’s say a board member spends 20 hours getting decorations for an event, sending invitations, making phone calls. That is 20 hours that they will now not be able to spend on cultivating a major donor, working on program strategy, making alliances for growing the organization, etc. A nonprofit needs to view their board members as a resource just like any other (staff, funding, etc.) and whenever they employ that resource they need to calculate the return on that resource. Quantifying a board member’s (or any other volunteer’s) time by attaching a dollar amount to it allows you to analyze the best use of that resource.

To your second point, I absolutely agree that there can be benefits outside of money that events can bring to a nonprofit. And I actually argue that it is those benefits (raising awareness among your target audience, thanking supporters, cultivating major donors, etc.) that are what events should be for, rather than raising money. But find a way to get those benefits without spending $100K. Let me give you an example. When I was at KLRU, Austin’s PBS station, we started inviting audiences into our tapings of local TV shows. There was no direct cost to us for these events and just a few hours of staff time were the only indirect costs. And we didn’t raise any money, but these events were invaluable in getting people in our doors, demonstrating the value that KLRU had, getting people excited about and knowledgeable about our work, etc. And they were open to major donors and prospects only, so they had an exclusive feel, but also were a way for us to cultivate donors. They were tremendously successful events. My point is that you can have those “intangible” benefits from events, but achieve them at a much lower price point than $100K.

When calculating the “true” cost of fundraising many organizations, knowingly or unknowningly, do not include all costs. Too many report 90-100% of every donation goes to serving those in need. Plainly said, this is just not realistic when it comes to any organization, especially those using special events as their primary fundraising vehicle.

Here in Canada, the national average for cost per dollar raised for Special Events is $0.54 per $1.00 raised. This usually only includes direct event operation expenses! Staffing costs are an additional 57% of operation expenses, or $0.31 for an event. Bringing the avergae total event cost to $0.85 per dollar raised. A 15% profit margin. And this doesn’t account for Board, volunteer, inkind donations or other “off the books” expenses that are never counted.

If you count all expenses, events as fundraisers becomes questionable and only very few a very profitable. They are doing a great job! However, even when counting only event operation expenses ($0.54), events are nowhere near as profitable as major gifts or planned giving ($0.05 to %0.10 cost per dollar raised) as fundraising methods. With these other methods being five plus times more profitable than events, where do you really want your Board, staff and volunteer time being spent? The kicker is that almost all charities run special events while only 9% use major gifts and 4% use planned giving.

Then again, if a private company turns a 15% profit margin, this is considered a fairly good return by the public eye. I think the public eye has totally unrealistic expectations of all charities…but that is really a whole other issue.

Darryl,

Thanks for the data on Canada, it sounds like your nonprofit sector is in a very similiar boat, with a focus on low ROI events as opposed to high ROI major and planned giving programs to raise dollars.

I completely agree with you that the public has a totally unrealistic view of how nonprofits operate and what percent of their revenue should go to fundraising and other “administrative” expenses. I think the answer to that, as well as the low-ROI fundraising efforts, is for nonprofits to become more analytical about their fundraising costs (and all operating costs) and then become more articulate and clear with donors about those costs. Let’s stop pretending that its ok to spend as little as possible on operations, fundraising, and infrastructure and let’s start getting to the true costs of the work nonprofits do (both program and operating work). Both are critical to effectively achieving social impact.