The Great Budget Excus … um … Debate

It's that time of the year — somehow we skipped Halloween, and all the holiday decorations are showing up in the store. I think I even received my first fundraising appeal last week with Christmas labels in it.

What else does this time of year bring? That's right — many, many, many fundraisers and marketers are working on budgets for next year. There are so many moving parts to the creation and negotiation of nonprofit fundraising budgets. I get it. I did it. I did it for lots of years. I understand the pressures, and I certainly have lived all of the scenarios:

• The organization had a bad year so we need to cut the budget everywhere.
• The XYZ program had a bad year so that program needs to cut that budget.
• We need to fund other priorities so we need to cut the budget in various places.
• Congratulations, you have a 20 percent increase in your budget. (Oh, wait, I think I fell asleep and was dreaming.)
• We'll keep your budget flat (yay!), but we need you to raise more money with that budget (booooo).

So, before you read further, yes, I have a particular soap box on this issue. But I absolutely know how this all works. With that said, it bothers me that our view of the budget can be so short-sighted.

I believe that when budget adjustments need to be made we often think of it in the way of black and white. Yes, in the end we are dealing with a math equation. We have to meet a specific expense number, and we have to meet a specific revenue number. But the path that we use to get there seems problematic.

• The CPDR Plan: Let's look at where Cost Per Dollar Raised is the highest and remove those programs so we are spending less but the net revenue is not negatively impacted (and might actually go up). This is absolutely a short-term method. If an organization uses this approach to handle a budget issue, it will eventually catch up to it. We see this when some of the higher-margin programs such as acquisition, lapsed recapture, warm-prospect conversion, etc. are cut. Granted, the first-year impact is not really felt, but in future years we all know what happens — it creates the "forever asterisk" on the financial reports because making changes that affect the future donor funnel will always show up as two- to three-year negative impact on what typically is the better margin programs.
• The No New Strategies Plan: Since we have to cut our budget on our current program, all plans for new strategies are to be put on hold. Why, oh why, do we do this? This approach makes one very large assumption: the current program is flawless and nothing else could help it. Since many of our budget issues come from performance issues within the program itself, I always find it odd that the first thing we do is stop thinking of changing anything. Granted, "risk" has to be measured and only low-risk strategies should be considered, but sometimes in the toughest of budgets you can actually deploy new strategies that completely uncover new opportunities to save money, reallocate money, etc.
• The No Creative Testing Plan: Since we have to cut our budget on our control, we surely cannot launch any new creative strategies. For the same reasons as discussed in the above bullet, this is simply implying that your control is the best it can be. While I wouldn't suggest frivolous testing, make sure you are looking at some of the industry's most successful strategies and whether should be a part of your program.

Here are some questions to ask yourself as you go through this process:

1. If you are going to stop a particular effort (acquisition, lapsed, etc.), what is the impact (cost and revenue) for the first year of the change? What is the impact of the decision in years two and three?
2. How much will making this decision take you off your current revenue trajectory and if you wanted to maintain that trajectory, what would you have to do to recoup revenue and/or donors in the future? In other words, if you do this to solve this year's problem, are you just digging a larger hole for yourself next year?
3. Based on the answer to No. 1, have you fully vetted this one- to three-year year impact with your leadership? In other words, have they agreed that solving year one's problem is worth having continued issues in years two and three?
4. Are there data science tools/models you can use to help identify inefficiencies? Identifying inefficiencies is not the same as cutting high CPDR programs. What can you do to identify areas where you might be driving too deeply into your constituent portfolio and the lifetime value of that investment is not paying off? Where could you actually identify segments that are not only costing you money in the short-term but also not benefiting you in the future? Yes, these might cost money, but a good tool will guarantee its results (inclusive of its costs). Find those, and then spend that money on other areas to raise your revenue higher.
5. Is there a core strategy that is missing from your portfolio? Do you have a monthly giving program, do you have a matching-gift challenge using one of your corporate sponsors, do you use magic amounts to help your donors understand how their money can be used? You must continue to measure risk — but if you could spend some money to create a new creative theme that could motivate your donors in a greater fashion, don't fall into the trap of not wanting to spend any testing money.

Budget management and budget cuts are never easy, but becoming stagnant and not trying to change is not the answer.