Nonprofit leaders often worry about keeping their fundraising costs low, but that may be the wrong approach. The first in a two-part series on fundraising expenses.
How much should I spend on fundraising?
If I had a nickel for every time I heard this question . . . I might be a major donor to your nonprofit.
Don’t get me wrong. I understand the question, and I know that it’s a matter of concern for many organizations. But it’s the wrong question. It makes the mistake of treating your development department as a cost center rather than a profit center. That’s an important distinction to make—and to get right.
Why? Because dollars spent on fundraising bring in more dollars. And more dollars spent on fundraising should bring in still more dollars. In other words, more fundraising may add “cost,” but that cost is an investment in driving more revenue.
MAKING INVESTMENTS AND REALIZING GROWTH
Nonprofit leaders often seem to think that they’re going to “save” their way into an extra million dollars in the budget just by spending as little as possible. That simply is not the case. You’re going to generate a bigger budget by growing your budget. (That’s not to say that there isn’t some fat to trim, but don’t make the mistake of assuming that it’s obviously in the development department.)
The CEO of a $5 million organization recently told me how proud he is of how little they spend on fundraising. He worked with a significant portion of the donor file, and ran all of the marketing for them. They also had 12 months of cash in reserves—which is not irrelevant.
Now, that’s a tight ship, to be sure, and he was proud of the organization’s efficiency (which is impressive!). I get it. But what he failed to see is that he was hamstringing his own organization’s growth. He even opened up to me that he doesn’t have time—with everything going on—to track his performance in marketing, because he’s so busy.
Well, what if he could take some of their impressive cash reserves and hire someone to do marketing—what might happen then? For one thing, the marketing would probably get better. It’s good already, and it’s working—but what’s to say it couldn’t be better and reach more people?
He could also turn his attention to working with more principal gift prospects. What then? Well, he could focus on retaining more donors, upgrading more donors, and acquiring more donors.
What would that mean practically? In the short term, it means eating into cash savings and increasing development and marketing “costs” . . . in order to significantly increase revenue. In the long term, then, it means more money and that means more mission.
That’s a key point to appreciate. Investing in development is investing in generating more revenue. And the point of that revenue is advancing your mission—reaching and serving more people.
SLAUGHTERING THE GOLDEN CALF
“Efficiency” and “low overhead” are a golden calf in the nonprofit world but becoming obsessed with these goals can make them into idols.
Efficiency is a good thing, and directing money to mission (not overhead) is important. But we need to be careful about identifying conflict, waste, and opportunity. That’s the point about seeing fundraising as a profit center, rather than a cost center.
Here’s the point: don’t treat low fundraising expenses as a virtue. If you have the vision, imagine how you can grow your organization, and make the investments (which means fundraising costs!) you need to make in order to get there.
HOW MUCH IS TOO MUCH?
So the goal is to fundraising as a worthy investment. That doesn’t mean that bloated overhead costs or huge fundraising expenses are per se a good idea.
The mindset shift is seeing fundraising as a worthwhile investment. The next step is thinking about what a responsible investment is.
In part two of this series, I will offer some ideas about how to think about much to invest in fundraising.