Is Cost to Raise a Dollar an Important Metric?

Julie Rodda, in her Philanthropy News Digest Message Board Post “Cost to Raise $1,” pointed out that efforts continue in the profession to increase income, decrease expenses and reduce the cost to raise a dollar. There is no national standard for how to determine your cost to raise $1. Some charities include salaries, while others include administrative costs. No apple to apple to apple comparison is available.

Using cost to raise a dollar as a tool to compare charities has no basis since there is no standard for computing the figure. The Council of Better Business Bureaus limits fundraising costs to $0.35 for each dollar raised. The National Charities Information Bureau allows a $0.40 per dollar raised overhead ratio. You must be careful of “spin” when charities compare their cost per dollar raised ratio to other charities.

Solution Link provides interesting insight on how to maximize this ratio. Factors to be considered include:

1. Opt for outcome-based expenses that are a component of a proactive fundraising plan.
2. Invest in strategy and donor engagement and put your money into key activities that will produce a tangible ROI.
3. Run comprehensive analytics on every campaign component.
4. Invest in people and processes proven to maximize ROI.

When examining Greenfield’s fundraising cost-effectiveness book at a deeper level, he notes that the total fund development program must be measured for its overall productivity and profitability.

Summary analysis should address:

1. Accountability for decisions made
2. Quality indicators on performance;
3. Program assessments as to growth in numbers of donors and their levels of gift support
4. Improved cost of fundraising
5. Improved return (net income)

While universal “cost-to-raise-a-dollar” metrics can be debated, one thing that cannot be debated is how funds are used by nonprofits to benefit the communities they serve. What are the actual outcomes? Did the nonprofit improve lives through a variety of verifiable factors? According Greenfield, nonprofits should expect to receive support from the public only if it delivers quality programs and services that benefit the same public. It must also demonstrate the ability to manage operations in a professional manner generating public confidence and trust.