The Power of Managing your Cost-Per-Dollar

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Most small to mid-sized non-profits have important, high-potential programs and skilled, dedicated staff, but the vast majority are in moderate to severe financial distress. Survey any group of nonprofit executive directors and board members about their top concerns for their organization, and it’s likely that fundraising is at or near number one.

To manage a challenge, we must first measure it. In the case of fundraising, a powerful but underused indicator is the ratio of fundraising income to expense, or cost-per-dollar (CPD). An organization with high CPD strategies may be spending too much to make too little. Organizations using expensive, low-return strategies risk staff stress and exhaustion. Program consistency and quality may suffer. Typically only the tenacity of staff and long working hours keep the organization afloat, and beneficial services and impact can’t achieve needed breadth or depth.

Some indications that an organization may have a high CPD are as follows:

  • Most individuals are solicited for gifts at fundraising events or by email or printed letters. Among those that do make a gift, approximately 50% give no donation the following year.
  • Foundation grants are viewed as a critical source of revenue demanding much time, focus and resources. Program descriptions and proposed deliverables will change from grant to grant to match funding guidelines.
  • Corporations are asked to sponsor events; grant appeals are made to their foundation arm.
  • If obtained, government funding covers only partial costs, thus focusing the organization’s fundraising goals on closing the remaining gap.
  • All board members are continuously asked to help raise money from family, friends and associates, but only a minority do so.

These activities demand substantial amounts of staff time, as any nonprofit staff or volunteer will testify in the months leading up to the annual gala. Moreover, they usually are not specifically designed to secure large sums of money, so they do not generate more than a modest amount of surplus revenue. Thus, many organizations arrive at a high CPD revenue structure.

Like high cholesterol, high CPD is not a guarantee that the organization suffers from a potentially fatal condition, but it is a significant enough red flag to warrant careful examination. The danger of getting stuck with subsistence-level fundraising—one that consumes far too many high-potential organizations—requires all nonprofits to carefully track their CPD.

Doing so is fairly straightforward: First, add up all the gifts and grants in a given year (only count gifts-in-kind if they saved the organization from a planned expense). Second, add up the annual expenses of the fundraising effort: staff (salaries, benefits, and expenses—include proportional expense for all who help, not just dedicated staff); volunteers (multiply the number of volunteer hours spent on fundraising—by your board, event volunteers, envelope helpers, etc.—by $25/hour); and operations (supplies, printed materials, appeal letters, events, etc.) Then, divide income by expense to calculate CPD. If a nonprofit spends $250,000 to raise $500,000, its CPD is fifty cents. In other words, of every dollar that organization raised that year, one half went to fundraising expenses. (Note: this is a quick way to yield an approximate CPD. Multi-year or structured gifts like pledges or trusts need calculation before inclusion.)

High performing nonprofits consistently measure and actively manage their CPD. Most mature, carefully strategized fundraising operations aim for a CPDs of ten to twenty cents. Importantly, however, it may make sense to run a high CBD intentionally. For example, at the beginning of a new program or operation, a nonprofit may choose to spend aggressively on fundraising staff and marketing. CPD in the first year or two may be very high until lengthy donor cultivation cycles mature and the organization brings in large gifts and more than justify the initial investment.

A high CPD isn’t necessarily a problem, however, not measuring it, nor actively managing CPD to reach an intentional target does expose the organization to a high degree of unnecessary risk. All organizations with a CPD higher than about $.40 may be using high-cost, low-return strategies.

What are the more efficient, effective strategies? What do nonprofits do to achieve robust and steadily growing levels of revenue with low CPD? Here are a few examples:

  • Events are short, creative, festive and frequent. The goal is information sharing and community building around a goal. The organization seeks to connect with high numbers of diverse participants.
  • Careful acquisition and cultivation strategies aim at high-net-worth prospective donors. There is a compelling slide deck or business plan; a relationship management system tracks and evaluates customized, face-to-face appeals to a growing portfolio of current and prospective major donors.
  • Heavy investment in donor recognition and reporting results in a 90% or higher donor renewal rate.
  • Foundation revenue is used as seed capital for new programs only; all proposed deliverables aligned with the organizations business plan; staff time is spent only speaking to foundation staff if invited to submit a proposal—most all research and writing is contracted.
  • Corporations are approached as partners, not donors, with structures like affinity programs, employee engagement days, co-branding opportunities, and leadership collaborations and sponsorships around major initiatives and like educational campaigns or certifications. The nonprofit secures funding from marketing or operations budgets, not just foundation arms.
  • Agency funding that threatens to create a financial gap is first met with attempts to lower cost with technology, lean process, multi-agency partnerships, etc.
  • The organization has optimized is earned-income opportunities, ensuring that contributed revenue efforts are not subsidizing lost opportunity on the earned-revenue side.

Most organizations achieve and maintain a consistently low CDP of ten or twenty cents because they consistently bring in a small number of very large contributions consistently. Even if the nonprofit is very small, they have an actively managed portfolio of major prospective investors—individuals, foundations, corporations or agencies—that can make 6-, 7-, and even 8-figure and higher contributions, not as part of a one-time capital campaign, but as part of a continuous revenue growth effort.

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