Is Cost to Raise a Dollar an Important Metric?

I have worked for an array of nonprofit organizations throughout my long career. Each organization was different, as each focused on different programs. Universities took pride in having solid annual giving programs. Hospitals focused on major gift programs. My organization, The Salvation Army, has had an outstanding planned giving program through the years. In fact, of the 11 organizations I have represented over many years, the best cost-to-raise-a-dollar ratio has been with my current employer.

During my seven-year tenure, the cost has been no higher than $0.18 for each dollar raised. My organization is proud of the fact that they strive to stretch every dollar generated to assist the most in need in the communities we serve.

According to the Affinity Resources, the standard that many use when identifying an appropriate cost per dollar raised for annual fundraising around $0.20 for every dollar raised. This number has its origins in the book, “Fund-Raising: Evaluating and Managing the Fund Development Process,” in which James Greenfield observed the following costs that are associated with different kinds of fundraising:

Fundraising Activity/Method                                              Average Cost to Raise One Dollar

Capital Campaign/Major Gifts                                               $0.05 to $0.10 per dollar raised

Corporations/Foundations                                                    $0.20 per dollar raised

Direct Mail Acquisition                                                           $1 to $1.25 per dollar raised

Direct Mail Renewal                                                                $0.20 per dollar raised

Planned Giving                                                                         $0.25 per dollar raised

Special Events                                                                         $0.50 of gross dollar raised

National Average                                                                    $0.20 per dollar raised

Obviously, results vary based on size of program and various variables at work. Mal Warwick, who has written extensively on fundraising, says the cost to raise a dollar idea is a myth. He believes there is no such standard due to the complex nature of nonprofit systems.

According to Charity Village, the cost of raising money is in the forefront of many people’s minds. The Canada Revenue Agency considers the fundraising ratio (revenue versus expenses) as only one factor in the analysis of a well-run organization. The objective is not to spend as little as possible but to maximize the dollars raised.

Additionally, according to Charity Village, costs of fundraising vary according to a variety of factors, such as age and maturity of the organization and development department, size of the charity and its budget, financial methods used, sources of raised income, use of volunteers and averaging costs. Four measures that need to be analyzed include percentage rate of return, average gift size, average cost per gift and overall cost percentage of fundraising costs by total contributions, multiplied by 100.

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.

Public perception is critical to the success of the total nonprofit industry. All of us must work to maximize revenues and keep expenses realistic. A great percentage of funds raised must go to the areas of charitable focus, based upon the organizational mission. We have an ethical and sacred trust with our donors to keep their faith in our profession as high as possible. Let’s work together to apply standards that everyone feels is a win-win for all.

I, for one, believe the cost to raise a dollar, if the elements of the equation are publicly known, is one of many important metrics that should be used for total transparency to the public we serve and the public where we obtain support.