I’ve written before about when nonprofit fundraising goes really wrong. An organization that I donated to a few times refused to leave me alone after 11 years of ignored solicitations. Today I want to flip it and talk about a nonprofit that has done a great job at fundraising. (In some ways they mirror my earlier post about when fundraising goes really right.)
Foundation Communities is a nonprofit in Austin, Texas that provides affordable housing and support services to low income families and individuals. About 4 years ago a friend invited me to a lunch at a Foundation Communities housing complex. It was NOT the traditional nonprofit gala luncheon.
Instead, when we walked into the common area of the housing complex there were box lunches waiting for us. The executive director and a couple of board members gave us a 5-minute description of what Foundation Communities is and does and why they are passionate about it. Then we watched a 10-minute video of the program in action and interviews with their some of their clients.
Finally our group was split into smaller groups led by a board member to tour the complex. On the tour, the board member explained how Foundation Communities uses an innovative financing model to acquire ineffective housing, renovate it and make it livable and affordable, while providing much needed after-school care, financial services and other help to the residents there.
At the end of the presentations and the tour we were asked to fill out a brief card with our name, contact info, and if/how we’d like to get involved with Foundation Communities (volunteer, take another tour, meet with a staff member). We were also asked if we could recommend a friend who might like to come to a future lunch. Foundation Communities holds these informal lunches every month. With that, the hour was up and we were on our way.
After that interesting and compelling introduction to the organization I started giving an annual gift. They were always very prompt with both an email thank you (since I made my donation online) and a paper thank you explaining how my gift would be used and all of the great work Foundation Communities is doing. Every once in awhile I would get an email about another specific campaign for which they needed my help. For example, right before school started one year they asked me to contribute the cost of a back pack and supplies for one of the children in their program. I found the email timely and compelling, so I complied.
When I gave my annual contribution again this year at Christmastime, I received a very nice voice mail from their Development Director thanking me for the gift and inviting me to call her back if I wanted to learn more about the program or had questions. I also received my usual email and paper thank yous, but this time with a special handwritten note from the executive director on the paper thank you.
I continue to give year after year to Foundation Communities because I am impressed by the organization, the results they are achieving, and the organization’s leadership. But I also continue to give because I appreciate how they treat me as a donor. They are informative, gracious, timely, transparent, but not annoying or needy.
Obviously Foundation Communities is way ahead of the curve, but I think they could take it further and gain even more support in the process:
- Instead of assuming that I want their paper newsletter every month (which I do not), they could ask me via email, phone or letter how and when to best communicate their results with me (email, phone call, social media, etc).
- Because I have a giving history with the organization, they could attempt (via email, phone, social media) to get to know me and my interests in order to 1) understand how to find more donors like me and 2) to explore whether they can increase my giving level.
- Since I have given to them over time, and I am active with social media they might explore whether I would be willing to tap into my networks to find others interested in supporting their organization.
Foundation Communities is doing a lot of things right. Other nonprofits could learn from their example about how to consistently and effectively build a donor base. But I’d also love to see Foundation Communities build on their great work to secure even more support.
Photo Credit: Foundation Communities
Key to any smart nonprofit financing strategy is an analytical approach to focusing on your most profitable activities. Part of this requires calculating the cost of fundraising of every revenue-generating activity your organization engages in. But the more important, and difficult, part is deciding when to stop an activity that doesn’t make financial sense anymore, which is the topic of today’s installment of our regular Financing Not Fundraising blog series.
To recap, our Financing Not Fundraising blog series was born out of the reality that fundraising in the nonprofit sector is broken. Nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
In the world of fundraising, nonprofit leaders often make decisions based on what will ruffle the fewest feathers rather than what is financially best for the organization. For example, a nonprofit shouldn’t continue hosting their annual gala year after year simply because they always have, or because their board, donors or staff think it should continue, or because of some vague “goodwill” it creates.
Rather a nonprofit’s leaders should make a data-driven decision each and every year. When a fundraising activity starts to cost an organization more than it brings in, it’s time to abandon that activity. The same is true of a foundation grant that takes many more resources than it generates, a direct mail campaign that costs the organization more than it brings in, or any other revenue-generating event that is financially ineffective.
I know that the idea of abandoning what an organization has done in the past could cause tremendous political upheaval, so it is absolutely necessary that you follow a disciplined and defensible approach to uncovering and then abandoning costly activities. Because if you don’t, they will eventually bleed your nonprofit dry.
Here is the approach to take:
- Calculate. You need to know the net revenue and cost to raise a dollar of every revenue-generating activity your organization engages in. This includes each event, each direct mail and email campaign, the grants you write, your major donor campaign, and so on. Here’s how to do those calculations.
- Compare. Then compare the net revenue and cost to raise a dollar calculations of every one of your activities to see how they stack up against each other.
- Create 3 Lists. Assign each of your revenue-generating activities to one of three lists:
- Abandon: Activities with a cost to raise a dollar above $1.00 should be put here.
- Evaluate: Activities with a cost to raise a dollar just under $1.00 go here. You may want to investigate whether you can cut direct or indirect costs in order to lower the cost to raise a dollar.
- Invest: Activities with the lowest cost to raise a dollar are the most profitable to your nonprofit, so you should work to invest more time and resources in these activities.
- Gather Support. It’s not enough to have the executive director and/or development director on board with a decision to abandon an activity. You have to make the case to the entire staff and board, and possibly some invested donors (like event sponsors). Walk them through your net revenue and cost to raise a dollar calculations. Help them understand that this particular event, campaign, foundation proposal actually costs the organization money. Focus on how you could reallocate resources to more financially lucrative activities.
- Pull the Plug. Please, please, please don’t do the analysis, build your case and then get cold feet. It takes real courage to make hard decisions, especially in the face of opposition. But if you know you must end something then DO IT! Don’t let anyone talk you out of making a smart financial decision.
I would love to see more nonprofit leaders abandon financially draining activities. It is not easy, I know, but it is the only path toward financial sustainability.
If you want to learn more about how to do this analysis, view our Calculating the Cost of Fundraising webinar. And if you want to learn more about applying the other concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series, or download the 27-page Financing Not Fundraising e-book.
Photo Credit: Skley
In part 9 of our ongoing blog series, Financing Not Fundraising, we are discussing the importance of calculating the return on investment of every revenue-generating activity your nonprofit undertakes. This can be fairly easily understood through two basic, but critical analyses: net revenue raised and cost to raise a dollar. If these two calculations were applied to every money-making effort a nonprofit engages in, organizations could quickly determine which are the most effective activities and scarce resources could be more profitably allocated accordingly.
If you are new to this ongoing series, our Financing Not Fundraising series argues that fundraising holds the nonprofit sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. To overcome this, nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities. Instead, they must create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
There are two simple, and related, calculations necessary to determine the effectiveness of a nonprofit’s revenue-generating activities. The first is net revenue. NET revenue is so much more informative than GROSS revenue. Gross revenue is the total of all money brought in because of a fundraising activity (a direct mail appeal, a gala, a foundation grant, a major gifts campaign). But that figure is meaningless until you understand what it COST you to bring that money in the door. These costs are both DIRECT (the materials required for the activity, the staff that worked directly on the activity) and INDIRECT (volunteer hours, overhead staff time). You only really know how much money you made once you subtract the costs to make it. Thus,
Net Revenue = Gross Revenue – Fundraising Costs (Direct and Indirect)
Let me give you an example. Let’s pretend that a nonprofit organization with a $500,000 annual budget throws an annual gala with a band, catering, and an auction. One staff member spends half their time getting the event together, and a board committee helps sell tables and provides oversight. At the end of the event the organization grosses $100,000. They are thrilled that they have made 20% of their annual budget in one night, right? Wrong.
That’s only the gross revenue. What is the net revenue of this gala, i.e. what did it cost them to raise that money? The direct expenses for the event (the band, venue, food, decorations, invitations, etc.) cost them $50,000.
Direct Expenses = $50,000
But they also need to factor in the indirect expenses. Their event coordinator spent half a year preparing for this event. Their Executive Director attended meetings, made phone calls to invite people, and came to the event. The Development Director worked on the event. And the board committee put in many hours planning, marketing, and attending the event. So if we calculate the hourly rate of those staff member’s time (salary and benefits) and multiplied it by the hours they each worked, we’d get the cost of their time. We also need to do the same for board members. We can use the standard value of volunteer hours ($20.25) multiplied by the number of board members who worked on the event and the average number of hours they spent. If we add all of this up we get:
Event Coordinator = $15,000
Executive Director = $4,000
Development Director = $5,000
Board Members = $3,000
Total = $27,000
So the total costs of the gala were:
$50,000 (direct expenses) + $27,000 (indirect expenses) = $77,000
And, the net revenue on this event was:
$100,000 (gross revenue) – $77,000 (direct and indirect costs) = $23,000
Which brings me to the second critical calculation: cost to raise a dollar. How much did it cost the organization to raise that $23,000?
Cost to Raise $1.00 = Costs (Direct and Indirect) / Net Revenue
$77,000 / $23,000 = $3.35
So it cost this organization $3.35 to raise $1.00. That’s not an attractive return is it?
Although this organization actually made money, the cost of making that money is far larger than the money they made. And how does the cost of making this money compare to their other fundraising activities?
Well, let’s take another example. Pretend this organization hires a major gift officer at a salary of $65,000 per year plus benefits. Her salary and benefits are the direct costs. The indirect costs could include: the Executive Director’s and board members’ time to go on donor and prospect visits, creation of materials, and the sending of thank you letters. The total for these direct and indirect costs would be $100,000. Say that this major gift officer raises $500,000 per year in major gifts.So the net revenue would be:
$500,000 (gross revenue) – $100,000 (direct and indirect costs) = $400,000 Net Revenue
And the cost to raise a dollar would be:
$100,000 (direct and indirect costs) / $400,000 (net revenue) = $0.25
So it takes $0.25 to raise $1.00. That’s a dramatically better return on investment than the gala that cost $3.35 to raise $1.00 above, isn’t it?
I encourage you to run the numbers on your own fundraising activities and then compare. How does your net revenue and cost to raise a dollar compare across activities? Which are the most effective fundraising activities? What if you poured more effort and resources into the higher net activities? More money would contribute to your bottomline, meaning more money to spend on the social impact you want to create.
That could be transformative.
If you want to learn more about calculating the costs of fundraising, download our Financing Not Fundraising: Calculating the Costs of Fundraising webinar, or download the 27-page Financing Not Fundraising e-book.
Photo Credit: sykez
I am often asked by exhausted board members and executive directors what the board can do to raise more money. My answer, let me tell you right away, is NEVER to launch a new event. Don’t get me started on my anti-events rant, that’s another post.
But there are other things that board members can do to raise significantly more money for their organization, in a much more effective way. Here are 7 to get you started:
- Invest. Make a significant financial investment in the organization. This is so obvious, yet rarely does a nonprofit organization enjoy 100% giving from their board. And those that do, often have several board members who are only making “token” gifts. If the nonprofit on whose board you serve isn’t on the list of your top 3 nonprofits and you aren’t allocating your philanthropic dollars accordingly, then get off the board.
- Open Doors. Open up your network to the organization. We all have friends, colleagues, co-workers, family members, neighbors. They may not all be $10,000+ level givers, but you would be surprised at the capacity that probably does exist there. If you really believe in the organization, then spread the word about your involvement to your network and encourage them to become involved. If you’re uncomfortable doing this then perhaps you need to rethink how committed you are to the organization.
- Get Strategic. Demand that your nonprofit create a strategic plan. Without an articulated direction and a strategy for getting there how are you going to get donors to invest? So many nonprofit organizations operate without a plan, and that’s probably why they struggle to raise funds. People donate to a cause, but they invest in a executable strategy for impact. The former results in small gifts, the latter brings big dollars.
- Expand the Revenue Model. Often nonprofit organizations take a narrow approach to thinking about bringing money in the door. They may have a direct mail campaign, get some government and foundation grants and call it a day. Instead, take a bigger picture view of the business that you are in and the various ways you could finance, not fundraise for, the end goal. Executive and development directors are often so caught up in the day-to-day of funding operations that they don’t have the luxury of taking this big picture view, but that’s where the board can step in.
- Fund Revenue-Generating Capacity. Make sure the organization invests in sufficient development capacity. Budget for and find a top-notch development director. Secure outside expertise to create a solid, executable development plan. Train the board on their role in fundraising. Don’t ask the organization to cut corners on development expenses, because you will just pay the price later.
- Articulate Why Someone Should Give. It’s so obvious to you why you are involved in your nonprofit. But can you articulate that to others in a compelling way? Can you demonstrate how a significant community problem is being solved by your organization? Can you do it in 2 minutes? Can the other board members and the staff do it? If not, then you need to create a case for support.
- Get the Board on Board. Once you’ve done all of these things, get your fellow board members on the boat. The nonprofit sector is structured to be led by consensus. So it isn’t enough for you as a sole board member to “see the light.” You have a responsibility to convince your fellow board members that they can’t think small anymore. They have to invest, get strategic, open doors, and so on. Once you are all on the same page, you will be a force to be reckoned with.
If you are interested in learning more about how to get your board raising money for your nonprofit, check out our Getting Your Board to Fundraise recorded webinar.
And if you want a roadmap for making your board more effective, download the “10 Traits of a Groundbreaking Board” e-book.
I promise you, there is an answer. It doesn’t have to be so hard. Board members can help their struggling nonprofits to find a path toward financial sustainability.
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