Issue 1- Summer 2013: When do costs matter? It depends

GiftsThere simply are NO reliable guidelines about how much it should cost to raise a dollar – no matter what the self-appointed charity watchdogs might tell you.” That’s Mal Warwick talking, after a lifetime spent helping charities all over the world with digital and multi-channel fundraising.

Is he right? The trouble is, of course, that any fundraiser saying things like that is vulnerable to accusations of self-interest. It’s rather like a doctor telling you there should be no limit on how much medical care should cost. But Mal, like every fundraiser I’ve ever met, is much more nuanced in his views than critics of the charitable sector might suppose.

“There are circumstances in which it would be embarrassing for an organization to spend more than a dime to raise a dollar – and those in which it would be worthwhile spending two or three dollars to raise a dollar,” he continues. “The only rule of thumb is, ‘It depends.’”

One size fits no-one

Imagine Canada and the Association of Fundraising Professionals agree. Their joint statement issued February 17, 2012 says, “Establishing a fundraising cost ratio is helpful but imperfect because it only measures a charity’s fundraising efficiency and cannot measure that charity’s overall efficiency or effectiveness. There is no ‘one size fits all’ answer as to what an organization’s fundraising cost ratio
should be.”

It is advisable for all charities to take opportunities to explain that fundraising is an investment – not a cost – which requires resources up front.
– Institute of Fundraising Code of Fundraising Practice

If cost per dollar raised isn’t the yardstick, what is? And just how do we measure the true cost of fundraising? Does revenue from an event guest end with the gift portion of the ticket, or do we stop with the partial tax receipt for the ticket, or do we track the guest’s lifetime support and the new-to-us friends she brings to the next gala? How do you put a cost figure on relationship building? When donors hear the same message from direct mail, email appeals, newsletters and personal presentations, which outreach channel gets “the credit” that justifies its costs? What is the opportunity cost of using one more dollar for fundraising rather than programs? Or the time spent parsing and reporting on data rather than writing personal thank-you notes?

We don’t like to see our donations spent on advertising … How can we take market share away from the for-profit sector if we’re not allowed to market?
— Dan Pallotta

As expressed by the leaders interviewed for this newsletter, the focus must be on outcomes. How can we do the most over the long term with the money we raise?

The issue is not that we can’t raise a dollar for a penny’s worth of effort.

The real miracle is that in the midst of stretching every staff and volunteer hour and every dollar of revenue to respond to growing human need, we are still committed to finding time for this discussion.

Tracking our own mission results, comparing ourselves to peer organizations, sharing new approaches to measurement — these topics are on the agenda whenever fundraisers meet with one another, with supporters, networks and government agencies.

Do we demand to know what marketing firms are spending their money on? Do we demand that they spend a lean 20% on salaries? No, we evaluate them based on the work they accomplish. This is how we should be evaluating charities as well.
— Joel Bentley, Peer Giving

Even Charity Navigator, once notorious for equating low overhead with organizational worth, now admits that “mission-related results are the very reason charities exist!” Yes, they will incorporate measurements of effectiveness in their overall ratings of charities … in 2016!

It seems that even for an agency whose entire mission is about measurement rather than eradicating poverty, injustice or disease, it’s a huge challenge to measure mission results meaningfully. Its change of outlook demonstrates that charities are finally making a credible case for the supremacy of outcomes and the need for reasonable investment to achieve important goals. It’s heartening to see the conversation spreading, and the tide turning on this continent and abroad.