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| What is the average cost per dollar raised? |
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 A difficult question, and often calculated
in a variety of ways.Benchmarking between organizations is not standard so costs per dollar raised can vary widely depending on interpretation and exclusion/inclusion of such things as facilities costs, the percentage of the CEO's salary that would be related to fundraising and many other items. Benchmarking is often done against national organizations such as the United Way and their average cost is compared to the institution. However, these costs may also vary according to the type of organization, types of campaigns they run, the stage of the campaign they're in, and how many services are provided by the organization centrally. For example, if you're raising a much larger percentage of major gifts, then your average $ cost per dollar raised may be lower than an organization more dependent on raising money through annual fund. Cost per dollar raised may also be greater at the beginning of a campaign since there are always additional startup costs such as a gala, ramped up prospect research, system acquisitions and other investments. It's also important to monitor the trends in cost per dollar raised. For example, based on your own organization's calculation of costs, how are you tracking over the last 5 years. Are you more or less efficient? James Greenfield provided the following answer in his book, Fund-Raising: Evaluating and Managing the Fund Development Process (1999). The overall national average cost to raise a dollar (CTRD) is 20 cents (or 80 cents of every dollar raised goes to the charitable purpose/programs): # Fundraising Activity/Method National Cost to Raise a Dollar 1. Capital Campaign/Major Gifts $ .05 to $ .10 per dollar raised. 2. Corporations and Foundations (Grant Writing) $ .20 per dollar raised. 3. Direct Mail Renewal $ .20 per dollar raised. 4. Planned Giving $ .25 per dollar raise¾and a lot of patience! 5. Benefit/Special Events $ .50 of gross proceeds. 6. Direct Mail Acquisition $ 1.00 to $ 1.25 per dollar raised. 7. National Average $ .20 Annual fund direct mail and telefund costs also typically fall within these ranges, but again will vary depending on the prospect pools you are contacting. In practice many people associated with a not-for-profit may be engaged in fundraising and may undertake tasks that have a significant fundraising content. If you have a larger ratios of volunteers, it will lower your average cost. The recent trend in political fundraising on the Internet will also lower your average cost since the acquisition, transaction and retention related costs are often lower than traditional ways of doing this. The average cost question is asked a lot, but the answer may actually not be that meaningful unless compared to very similar organizations recording everything in exactly the same way. You should always try to be more efficient, but it may be impossible to achieve the same average cost as some of the organizations you are comparing. More Information on SupportingAdvancement.Com 
Common
Sources of Funding.
It is fiscally prudent for organizations to
have diverse sources of revenue.Other Thoughts The following are from postings on various listservs. Always an active topic whenever the question comes up, with many ideas, discussions and various sources of information. Alan Hejnal on Advance-L (In response to the salary aspects of the question.) We've been doing this for a number of years at Gettysburg, and generally try to follow the methodology of the 1991 CASE/NACUBO study. We are able to include salary costs, and we use the institution's calculation of attributed benefit costs (which is 35% of salary). We don't include any portion of the president's salary. We do pro-rate the vp's salary and expenses according to a figure arrived at a number of years ago for the percentage of the vp's time spent fund raising, but we don't adjust it from year to year, and, in fact, haven't adjusted it for quite a while! The main glaring omission in our data is direct and indirect IT costs to support Development. That's budgeted under IT, and the institution doesn't currently have any mechanism to allocate costs to our departments. Our Finance office does some cost of fund-raising analysis for their own year-end audit-related reporting. We leaned on their data collection for years, until they (unbeknownst to us) changed their reporting to work at a much higher summary level, rather than breaking down the costs into the detail necessary to report in the categories of the 1991 CASE/NACUBO study. When that happened, we worked with them to get a report specifically for our use, which gathers the expense data (to the extent that it's available, of course!). Hugh Mallon on Advance-L Historically, there was little attempt to develop true cost-accounting approaches within the nonprofit industry. However, this may be changing with the events of the Senate Finance Committee and the IRS over the past six months. The answer to transparency lies in the school's desire (emphasis added) to implement an rather old technique known as activity-based accounting standards (“ABAS” – also, known as a mission based or cost accounting reporting) within the school/university/college. Most schools do not necessarily utilize cost accounting methods but only estimates in functional expense reporting. Utilizing an ABAS approach would allow the school’s internal management internal community (board and senior staff) and external community (general public) to better understand the interaction of the financial components of the operating budget (Sources and Uses of Revenue). Under ABAS, all functional expenses are apportioned to the appropriate source of revenue based upon activity based approach. For example, if the president of a college/university/school spends 75% of his time in fund-raising - 75% of his direct and indirect costs would be allocated to the function expense category of fund-raising. This though does not very often occur. ABAS's does not change the flow of revenue but re-apportions functional expenses more appropriately to the revenue source to better reflect to true costs associated with acquiring and managing such revenue. Initially, the process is somewhat time consuming to develop and implement. This has been the major reason why so many nonprofits have not applied such a technique - the Olde cost-benefit analysis dictates that the organization should use estimates. As a result, the lack of reasonable allocation of functional expenses makes it very difficult, even for the trained professionals, to measure the respective activities contributions to the long-term financial health of the organization. However, if the organization is willing to make the effort and investment, ABAS will produce more objective, reliable and relevant picture of the financial health and well-being of the organization and is a catalyst to improving the stewardship roles of the board and senior management. This failure to accurate reflect the functional expenses understates the true costs of the acquisition and management of revenue. For example - an apportionment of the salaries for President and other personnel who may participate in the fund-raising process are often not included in fund-raising costs. Even if a prorates shares of the salaries were included, the organization fails to included direct and indirect overhead {benefits, physical plant, IT, etc) that supports such activities. The use of estimates evolved from the ting the accounting industry who recommended the use cost estimates. A very typical approach used is: 80% - Program, 15% to 18% - General and Administration, 2% to 5% - Fund-raising) This is done rather than attempting to really quantify the costs. Most of the functional expenses of fund-raising have generally been buried in Program, Management and General Administrative costs. This approach understates the true cost of fund-raising. This may change though in the near future as the Senator Grassley and his cohorts are positioning the Senate, Congress and the IRS to provide increased transparency of nonprofits especially in the area of governance and financial reporting (accurate reflection of sources and uses of revenue). It is anticipated that Grassley will come out with his own version of Sarbanes-Oxley in the three quarter of 2005. Bryan Maloney on Advance-L and Response from John Taylor A simple standard can be mythical and that in the real world there are many variables affecting any calculation of the cost of raising a dollar. However, is there an accepted standard for which cost items should be included in this calculation? For example, some cost calculations might include personnel costs, like salaries and benefits, which sometimes need to be prorated for the percentage of time spent by a staff member on fundraising, while others include only operating budget numbers. Any thoughts on this? Many thanks! This is problem, Bryan. There isn't a ton of agreement. The CASE Management & Reporting Standards (3rd edition) includes the definitions and categories originally outlined in the 1991 CASE/NACUBO cost of fund raising study. But it says not to include a portion of your CEO's salary even if they are involved in fundraising. Back then that might have been rare. Today fundraising is typically in the campus CEO's job description! But the IRS has their own idea if you read the data entry requirements for completion of the 990 form (which is partly what the Center on Philanthropy used for their recent fundraising cost study found at http://nccsdataweb.urban.org/FAQ/index.php?category=40 ). So more food for though - but no real solid answer . . . Don Ray on Advance-L According to the Association of Fundraising Professionals (AFP), here are some reasonable cost per dollar raised guidelines. AFP, in my book, is perhaps the most authoritative source of information on this topic. 1) Direct Mail Acquisition (acquiring new donors through direct mail): $1.25 to $1.50 per dollar raised, with 1% rate of return or better 2) Direct Mail Renewal (getting repeat donors via direct mail): $.25 per dollar raised with 50% rate of return or better 3) Special Events: Net return of $.50 per dollar raised 4) Corporations and Foundations (grants received and sponsorships): $.20 per dollar raised 5) Planned Giving: $.25 per dollar raised 6) Capital Campaigns: $.05 to $.10 per dollar raised As you well know, to calculate the cost to raise money, the formula is "FC=E/GR" (which is "Fundraising Cost equals expenses divided by gross revenue"). For example, if you spent $2500 and generated gross revenues of $10,000, your Fundraising Cost would be $.25 for every dollar raised. Lori A. Redfearn on Alumni-L The California State University collected data on our cost to raise a dollar for three years from 2001-2003. Both the mean and the median of our 23 university system was 16 cents. The interquartile range was 9 - 21 cents. This figure compares fundraising costs to amount raised. We use a slightly modified version of the methodology from the CASE/NACUBO study "Expenditures in Fund Raising, Alumni Relations, and other Constituent (Public) Relations" which was published in 1990. That study, which is based on national data over 20 years old, reported a three year average: mean of 16 cents and median of 11 cents with an interquartile range of 8 to 16 cents. The CSU among others is encouraging CASE to refresh the national study and the Philanthropy Commission is exploring the options. Robert Weiner on Fundlist Quoting Mal Warwick. "The 'overall fundraising Cost to Raise a Dollar' is a myth. There is NO such standard, and anyone who tells you there is one should survey the real world of fundraising in all its diversity. One organization might be embarrassed to spend more than a dime to raise a dollar, while another might be fortunate to squeak by with 40 or 50 cents on a dollar -- and both might be ethically run, well managed organizations. This myth has been propagated by the self-appointed charitable "watchdogs," who long for simple-minded rules and guidelines, and by some major-gift fundraisers who know that raising money in large chunks is always cheaper than raising it in small ones. The reality does not live up to this simplistic approach. The cost of fundraising varies from one nonprofit organization to another based on a host of variables: the age of the organization, the size of the budget, the popularity of the cause, the fundraising methods used, the skills of the development staff, the strength of the organization's leadership -- and many more. I've written extensively about this subject (and I'll probably be forced to continue doing so, since this myth is so persistent). You can read what I've written -- including information about the relative cost of various fundraising methods -- in my most recent book, The Five Strategies for Fundraising Success (Jossey-Bass, 2000), as well as in some of my earlier books. You can also learn a lot about how to evaluate your fundraising program from Jim Greenfield's books on how to assess a development program." More Information @
Fundraising Costs. Fundraising and administrative costs. Benchmarking
and best practices.The Center on Philanthropy at Indiana University.
Article in the
University of Alberta's Advancement Services newsletter on fundraising
costs.
Impromptu Survey done on
Fundraising Fees and Endowment Costs. |
| Integrating Costs Per
$ Raised Into Your Standard Reporting
We get asked the same questions on a
repeated basis and cost per $ raised is just one of them. How
about looking at how your fundraising correlates with the stock
market, real estate prices, inflation or any other economic
indicators over a period of time? |
| Other References
Billitteri, Thomas J. and Debra K. Blum.
"Unsettled Accounts: New Bookkeeping Standards Intended to Stop
Charities From Understating Fund-Raising Expenses Are Drawing Sharp
Criticisms," Chronicle of Philanthropy 10, no. 11 (March 26, 1998):
41-46, 51. |
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Newsletter from Ketchum Canada Providing Additional Insights
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