Spending Money to Raise Money

Dear Kim,

You’ve often said, “You have to spend money to raise money.” But how much is enough? What’s the ideal ratio of fundraising expenses to income? 

~Bang for the Buck

Dear Bucky,

I feel there is something in human nature that wants these kinds of benchmarks so we have something to measure ourselves against. Personally I often look at the BMI (Body Mass Index) and try to inspire myself to lose weight to get into the “normal” zone. OR, I comfort myself knowing that Colin Kaepernick and I have the same BMI, but that doesn’t really do anything for my health.

Just as many very fit athletes are outside the “normal” BMI, there are many variables in judging fundraising costs and a simple ratio will do more to confuse than to help. For example, are you a brand new organization? Acquiring new donors is very expensive. You may well spend $1.00 for every dollar you produce. If you use a lot of mass strategies, particularly direct mail, you may spend more than you raise. Well-run events often cost 50 cents to the dollar raised. Keeping donors is much less expensive but how can you keep them without attracting them in the first place? Legacy giving is truly a case in point. Your organization starts a legacy giving program, creates materials, holds seminars, post information on your website. You don’t receive any gifts in the first, second or even third year. Your “ratio” shows that you have raised nothing for every dollar spent. But then in the 4th, 5th or 6th year, one of your long time donors leaves you a $100,000 bequest. That year your ratio shows that you spent 10 cents for every $10,000 you raised. Even if you amortize this first gift over all the years you have been seeking legacy gifts, you would still have an impressive ratio. But again, you have to attract and retain the donors in order to inspire them to make a legacy gift.

Another variable is the degree to which your fundraising methods are also designed to organize your community, educate the public and generally expand your mission. Robust fundraising programs do all that, but this makes calculating your fundraising costs even more difficult.

Those frustrated with my answer can type this question into Google and probably find some study or other that gives you an overall ratio. I am hoping you will also find any number of cautionary articles about using such a ratio.

~Kim Klein