It’s all about the lights!

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

I love holiday lights!  In our neighborhood, great herds of lighted dear have taken over; grazing in one yard after another.  While the little lighted deer family in our yard is modest, I just read about some holiday light displays that can raise your electric bill quite a bit.  Apparently, one family in Delaware spends more than $600!  Not $600 per month, $600 per hour!  Clearly, the mission is to celebrate the joy of the holiday season, but what if you could still enjoy all those lights without the big electric bill?  What if you found out that switching to energy-efficient LED lights would save you 90 cents on the dollar?  Sure, efficiency is not the mission, but what could you do with that kind of savings?  Of course– buy more lights!

Fundraising efficiency is kind of like that.  Charity watch agencies use stats to evaluate how much charities spend on fundraising.  One of those calculations is the cost to raise $1.  If you add up all the costs of fundraising and divide by the amount of contributions raised, you get a figure that can be compared to prior periods as well as other organizations, and industry benchmarks, as a measure of fundraising efficiency.

Of course, one statistic does not fit all, and one statistic doesn’t tell your unique story, but this one statistic can be useful for measuring the results of your efforts and guiding you to find what works best for your organization.

It takes money to raise money, so monitoring your fundraising efficiency over time might lead you to focus your resources on some activities over others.  You only have to be in charge of one silent auction to get the idea.  Some fundraising activities involve lots of time and detail that may not yield as big of a payoff as other things you could be doing—like a holiday lights tour!    

If focusing on your cost to raise $1 leads you to spend less by eliminating the less productive fundraising activities, your cost to raise $1 goes down.  If focusing on what works best actually leads you to bring in more contributions, your cost to raise $1 goes down.  Whether it goes down because you spent less or because you raised more, you end up with more money for your mission –like buying more lights!

What can we learn?

Compute your cost to raise $1 regularly.  The formula most often used is total fundraising expense divided by total contributions raised.  Your fundraising costs should include personnel costs for the time spent on fundraising activities, direct fundraising costs like supplies and postage, as well as the overhead associated with those direct costs.  If you present a statement of functional expenses per GAAP, use the total of the fundraising column.  If you’re using your Form 990, pull total fundraising expenses from the expense page, part IX.

Measure the cost to raise $1 using averages.  New fundraising initiatives can take time to pay off.  Costs invested in one year may not pay off until the following year.  A 2-year moving average may be a better representation of your progress. 

Monitor your cost to raise $1 over time.  Compute and report your cost to raise $1 from year to year so you can evaluate the results of your efforts and consider any changes to your activities.

Compare your cost to raise $1 to benchmarks.  Your potential donors are hearing about these expectations from various charity rating agencies where, generally, a cost of 25 to 30 cents to raise a dollar is considered good. 

Learn more about charity ratings.  We have a helpful session on The Charity Scorecard – Putting Your Best Foot Forward that’s part of our next level financial leadership training for emerging nonprofit professionals, Raising the Bar – Preparing for Higher Expectations.

New to overseeing the finance function?  Our seminars for emerging leaders help nonprofit professionals learn the basics of the finance function.  In Financial Leadership Training for Emerging Nonprofit Professionals, there’s a helpful session called Building your Budget—and putting it to work.

Preparing for growth?  Our Raising the Bar seminar prepares new nonprofit leaders to meet the increased expectations for financial oversight as their organization grows.   

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