The Three C's of Fundraising - Part I
This blog post will introduce a series of three different articles focused around what I refer to as the “Three C’s of Fundraising”. The Three C’s are:
· Cost of fundraising
· Circulation system dilemma
· Compensation of fundraisers
All three of these issues have been brought to my attention since I arrived in Korea. Because each is a concern, I thought it would be best to address them and share my perspective in the next few blog posts.
Any nonprofit raising funds, whether it’s a university, hospital, social service organization or any other nonprofit, needs to be run as a business. Not only does the fundraising office need to act like a business, but also the entire organization needs to do the same. While nonprofits do not have shareholders as a business does, nonprofits do have donors who are making an “investment” in the future of the organization. Remember, you are raising money for the organization to support its programs which meet the needs of the community. Therefore, monitoring costs is extremely important.
From what I understand, there was a recommendation within the government a few years ago that overhead costs for a nonprofit (fundraising and administrative) should be no more than 2%. Within a few years and more data from the nonprofits, that percentage was raised to 15%. And this is a mandate! But is it realistic?
Over the years in the US, there has been extensive research regarding what is considered reasonable overhead costs for nonprofits. There are three major watchdog organizations in the US and each one of them has different guidelines for what is acceptable, but their range is as low as 35% and as high as 40%.
No matter how one looks at it, that is still much higher than the Korean standard of 15% for overhead costs.
There is one major problem with trying to put all nonprofits into the same category for overhead costs. That’s because the cost of doing business is influenced by many different factors. One of these factors is how long the nonprofit has been raising money. The cost of finding a new donor is much more costly than having somebody who has given in the past give again. Another factor is whether the nonprofit is raising money through a basic annual fund or is it in a sophisticated major campaign. There are other factors, but hopefully you understand my point.
I have been in the fundraising business for 35 years. During that time, every organization I have worked for or consulted with has been concerned about costs. At some point, I’m always asked, “What is the cost of doing business?” My experience has been that a nonprofit raising money should keep their overhead expenses to 20% or less.
While this is a little higher than the 15% level that is mandated for Korean nonprofits, it does provide a higher threshold. And it is much lower than the recommendations mentioned earlier in this article from the three watchdog groups in the US. I realize that each country has a different culture and way of doing business. But the information from the US includes many years of historical data since the nonprofit sector has played such a vital role in society for many decades.
How can a nonprofit lower its costs, particularly with fundraising? I’ll provide one short term solution as well as a longer term solution. The short term solution is to analyze your fundraising activity and calculate the return on investment (ROI) for each fundraising activity every year. You might be surprised at how well a program is doing or not doing. If it’s doing well, spend more time with it. If it’s not doing well, then decide whether that activity should be kept for the future. If that activity is not close to your expense target, then I would seriously consider not doing it again.
The longer term solution is to work with leaders in the Korean government to help them better understand the importance of the role of nonprofits as well as the business of fundraising. Share with them data from the nonprofit sector. Educate them as to how nonprofits raise, spend, measure and report funds.
If the government is going to mandate a percentage of overhead costs that nonprofits have to maintain, then that percentage needs to be realistic. A percentage that is too high can lead to a misuse of funds within the nonprofits. A percentage that is too low can lead to the nonprofit not being forthright about its costs to maintain that important percentage mandated by the government. Neither of these scenarios is good.
No matter what, each nonprofit has a responsibility to its donors to always be good stewards of the gifts. Donors are the future of any nonprofit that is raising money. Being good stewards of their gifts will help your organization raise more funds in the future.