Predictably, my post last week arguing that nonprofit events aren’t efficient fundraisers caused some controversy. In particular, fundraising consultant, Gayle Gifford and I had an interesting (and very polite) debate about the post.
The exchange with Gayle really made me think and further refine my argument (which is really the point of debate, right?). What our exchange made me realize is that my issue with nonprofit fundraising events goes far beyond my belief that they are inefficient fundraisers.
Rather, my distaste for events stems from the fact that they often perpetuate the charity mindset, a destructive approach that keeps the work of social change sidelined and impoverished. The world is changing rapidly and the “charity” model doesn’t work anymore. And in fact, that model holds nonprofits back from becoming more efficient, more sustainable social change machines.
In our debate, Gayle and I discussed how events are merely a symptom of larger changes happening in the economy. As I wrote, nonprofit events are part of a:
“dying mentality that “charity” lives beside,…instead of fully integrated into, the economy. I believe that we are moving to a place where the work of social change (historically the work of “charity”) is fully integrated into the rest of the economy…the work of social change is just as important as the work of making widgets or the work of building roads and everyone understands that in order for all of it to work well, we need to finance it effectively.”
And Gayle argued that what I am describing would be a significant change to the world as we know it:
“I too long for/ and am working for the day when social justice is integrated into our economy as well as our philanthropic life… though that’s going to take some pretty massive restructuring of an economy based on unlimited resource extraction and consumption. But I still hold out that hope.”
But, as I responded, I think that kind of massive restructuring is already well underway:
I agree with you that fully integrating social change into our economy is not going to be quick or easy, but the truth is that it is already happening. There is a real convergence of the nonprofit, for-profit and government sectors and the result is that social change is now rather ubiquitous. At the same time, technology and the ways in which we communicate are changing rapidly as well. Add to that a Millennial generation that bakes social change into everything they do, and I think you start to see the beginnings of the “pretty massive restructuring” you and I are talking about. Nonprofits need to do the analysis and abandon activities that just aren’t effective. And then they need to look to some of these structural changes we are witnessing to find more efficient ways to create a sustainable financial model for their social change work.
In my mind, nonprofit fundraising events are anathema because they are symptom of a larger, ineffective way of thinking about nonprofits and the work of social change. Fundraising events are typically run as an aside, a tangential activity that sucks time and money out of a nonprofit and begs otherwise uninterested participants to pay the price of admission. These events keep charity squarely separate from the “real” work of the world.
And I truly believe we have moved past that. There are just too many social challenges to think that benevolent, reciprocity-based “charity” will work anymore. Social change must be bigger, more effective, and more efficiently financed.
When we stop thinking of the work of social change as “charity” supported in part by inefficient, occasional parties, we start creating real investment, real attention, and real change.
Photo Credit: Gerald Ford Library
I was speaking to a group of nonprofit leaders recently about how to Move from Fundraising to Financing, and when I came to the part about events, the room went predictably quiet. Looks of shock shot around the room. Events are so ubiquitous in the nonprofit sector, how could I possibly say they have little financial value? It was heresy.
For the most part, when you factor in the direct (food, venue, invites, entertainment) and indirect (staff, board and volunteer time) costs of an event, you either break even (best case) or lose money (worst case). The error many nonprofit leaders (board and staff alike) make is looking only at the gross revenue of an event (“We made $50,000!”) as opposed to the net revenue (“After factoring in expenses, we actually only made $20,000 on that event…”) and the cost to raise a dollar (“Whoa, it cost us $1.50 to raise $1.00 at that event!”).
Because it was a group of nonprofit leaders, they remained polite despite their disbelief (God love them!). But they did argue with me, and here is how I responded to each of their refutations:
“Board and staff time aren’t event expenses.”
The argument is that since staff salaries are a fixed expense and board (and other volunteer) time costs nothing, you shouldn’t include these items as event expenses. But you absolutely should. Every resource a nonprofit has (especially board and staff time) is limited. When you ask a board member to spend 20 hours volunteering to put on and attend an event, that is 20 hours of their time you can’t use in other (more profitable) ways. This is the idea of opportunity costs. As a nonprofit leader you want to make sure you are putting each resource to its highest and best use.
“Even if an event isn’t financially profitable, it raises awareness.”
I know I’m on a “raising awareness” rampage lately, but an expensive and time consuming activity like an event should never have such a vague goal guiding it. Awareness is not a real, tangible financial result. Awareness does not equal action, and it certainly doesn’t equal money. An event attendee’s vague sense of having had a good time quickly dissipates. Instead of trying to raise awareness, create a real strategy for getting in front of and encouraging action from your target funders.
“But our event builds our brand.”
Building your brand is about as meaningless as raising awareness. Forget the marketing jargon, the word “brand” is just a fancy word for what people think of your organization. I know this is blasphemy, but it simply doesn’t matter what people who are not in your target audience(s) think about your organization. In reality you only want to “build your brand” among those you are specifically targeting. So segment the market, figure out your target audiences, and then find cheaper, more specific ways to get them to act.
“We use events to connect with major donors”
Yes, now you are on to something. Let me be clear, I’m not saying that you should never host events. To the contrary, there absolutely are times when events make sense. When events are mission-focused, free to attend, and focused on cultivating and/or stewarding current or potential major donors (individuals, foundations, corporate leaders) they can make a lot of sense. But ONLY if you follow up with attendees on a one-on-one basis to further invest them in the organization and eventually ask them to contribute or renew their contributions. And ONLY if you don’t charge them to attend so that you can ask them for a bigger, and more meaningful gift down the road.
I stand by my claim: nonprofit events are not efficient fundraisers. Do the math on your events and see if they generate a positive cost to raise a dollar. If not, you should restructure or abandon them. But don’t continue doing something you hope is making money when it isn’t.
Photo Credit: Graham-Killers
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