How Much Does Fundraising Really Cost?

If you want to raise more money for your nonprofit, it is critically important that you calculate the return on investment of every revenue-generating activity your nonprofit undertakes. This can be fairly easily understood through two basic calculations. If these two formulas were applied to every moneymaking effort a nonprofit engages in, organizations could quickly determine which activities are most profitable and reallocate scarce resources accordingly.

The first calculation is net revenue. Net revenue is so much more informative than gross revenue. Gross revenue is the total of all money brought in from a fundraising activity (direct-mail appeal, gala, foundation grant, major-gifts campaign). But that figure is meaningless until you understand what it cost you to bring that money in the door. These costs are both direct (the materials required for the activity, the staff that worked directly on the activity) and indirect (volunteer hours, overhead staff time). You only really know how much money you made after you subtract the costs to make it.

Thus …

Net revenue = gross revenue – fundraising costs (direct and indirect)
Let me give you an example. Let’s pretend that a nonprofit organization with a $500,000 annual budget throws an annual gala with a band, catering and an auction. One staff member spends half her time getting the event together, and a board committee helps sell tables and provides oversight. At the end of the event the organization grosses $100,000. The folks at the organization are thrilled that they have made 20 percent of their annual budget in one night, right? Wrong.

That’s only the gross revenue. What is the net revenue of this gala? The direct expenses for the event (the band, venue, food, decorations, invitations, etc.) cost $50,000. Direct expenses = $50,000

But they also need to factor in the indirect expenses. The event coordinator spent half a year preparing for this event. The executive director attended meetings, made phone calls to invite people and came to the event. The development director worked on the event. And the board committee put in many hours planning, marketing and attending the event. So if we calculate the hourly rate of those staff members' time (salary and benefits) and multiplied it by the hours they each worked, we’d get the cost of their time. We also need to do the same for board members. We can use the standard value of volunteer hours ($21.36) multiplied by the number of board members who worked on the event and the average number of hours they spent. If we add all of this up we get: