Fundraising Tactics & Efficiency: Research Findings

1. Fundraising Tactics & Efficiency: Research Findings Thomas H. PollakCenter on Nonprofits and Philanthropy, The Urban Institute Patrick Rooney Center on Philanthropy,Indiana University Association of Fundraising Professionals (AFP) * * * * * * * * * * March 2004 Seattle

2. The ProjectNonprofit Fundraising & Administrative Costs:Assessing Current Practices & Developing a Framework for Reporting • Understand scope & sources of variation in fundraising & administrative costs, & identify problems or inconsistencies in their measurement and reporting • Develop & disseminate accessible reports, tools, & guidelines to public, practitioners & policy-makers • Initiate a fact-based dialogue on how to ensure comparable & uniform reporting of these costs

3. Multiple Research Phases • Analysis of IRS Form 990 data, n=228,000 • Survey of fundraising and accounting practices, n=1500 • Detailed case studies, n=10

4. Research for Decision-Making • Do you have the right staffing and resources for the job? • Are we missing opportunities to improve our fundraising? • Is there something that the more successful organizations do that we don’t? • Help nonprofits and their funders understand what it really cost (including staff time) to raise money using different fundraising tactics • Other long-term benefits from comparable high-quality data on fundraising costs

5. Findings from 990 Analysis • 37% of organizations with more than $50,000 in private contributions reported zero fundraising and special event costs • Of those reporting costs, more than ¼ received more than $15 for each dollar spent on fundraising • The median was $5.40 • Another quarter of organizations received less than $2 for each dollar spent

6. Perils and Limitations of the Research • What are we really measuring? Are organizations reporting consistently? • Broad analyses is no substitute for local knowledge • The cost of changing tactics: Don’t tinker with what works

7. Case Study Design • Goal: Ten case studies (five completed) • Diverse org. types, sizes and locations • 3 reporting zero fundraising costs • “Best practice” sites • Draw from survey respondents • Review 990s, surveys, and audits • Onsite interviews with CEO, CFO, CDO

8. Interview Protocol, CFO (2 hr) • Sources and uses of funds • Restrictions, fundraising methods, admin coverage • Functional expense tracking • Joint costs, time tracking, allocation method and rationale • Infrastructure costs • Who pays, adequacy, perceived pressure to keep low • External reporting: audit and 990 • Internal financial management • Budgeting, internal reports, distribution, “appetite” • Finance department • staffing, technology, outside supports

9. Interview Protocol, CEO (1 hr) • Financial management • Who’s involved, what they see, how often, how it’s used, finance dept. • Fundraising and Development • Information available for management, development dept. • Covering admin infrastructure • Difficulty, adequacy, gaps, reporting pressures

10. Interview Protocol, CDO (1 hr) • Sources of funding • Methods of fundraising used • Management and coordination of methods, people involved in F/R • Department staffing, technology, outside supports • Planning and information to manage F/R • Costs and revenues • Raising money for admin infrastructure • Perceived pressure to keep admin costs down

11. $1M Domestic Abuse Agency • 2/3 revenue contributed, 1/3 govt. contracts, no development staff, CEO very involved in F/R • A few corporate board members deliver significant special event sponsorships and program grants • UW, newsletter, corp and foundation grants, thrift shop • No personnel costs for F/R on audit or 990

12. Domestic Abuse Agency, cont’d • “I’m not an accountant, but I play one at work.” • Functional expense reporting “a work in progress;” no time tracking by functional expense area • “On M&G, our auditor says there’s no definition. You can do whatever you want.” • 990 prepared by auditor

13. $5M Community Development Corp • 70% program service revenue, 30% contributed • 2 FTE development department • Foundation grants, corp support for spec events, annual appeal, newsletter, UW • Senior execs deeply involved in fundraising, but no salary allocated to F/R

14. $5M CDC, cont’d • CFO plus 3.5 FTE accounting department • Staff assigned to cost centers, cost centers assigned to functional expense categories • No time tracking by category • Anything not at the parent is “program” • Auditor prepares 990 • Lack of infrastructure funding handled by paying low salaries and doing without

15. Literacy Agency of Arguable Size • 50% revenue from govt., 45% contributed • 1 development person plus vol. coord. CEO very involved in F/R • Foundation grants, UW, spec. events, mail appeals and newsletter, local corps. • Development person charges time to program to keep F/R ratio down • Grant budgets avoid “too much” in certain line items and all hard-to-explain line items, focus on direct program costs

16. Literacy Agency, cont’d • Use of volunteer tutors means a $1.1 million org on audit, $400K org on 990 • Admin and F/R ratios a “wasteful” 30+% based on 990, “efficient” 12% based on audited financials • Agency has been threatened with cutoff by a funder using 990 • No trained financial staff person; 1 admin director • Timesheets support allocation by functional expense category

17. Literacy Agency, cont’d • Class Z office space, very junior staff, cast-off furniture, etc. • Lack of infrastructure funding handled by paying low salaries and doing without

18. $2.5M Food Bank • 60% govt funding, 40% contributed • 3-day/week grantwriter; CEO relationships important to many funding sources • Foundation grants, spec. events, newsletter, UW, churches, local corps. • Zero fundraising cost on 990 was “a mistake” • All admin staff share one office, roof leaks, broken furniture • Low salaries: “We couldn’t replace X for what we pay her.” • “The advantage of running a thrifty organization is that you continue to get support.”

19. Food Bank, cont’d • $2M food donations, $500k cash expenses • 2.2 FTE admin and F/R staff allocated across functional expense categories by fixed percent; no time tracking • 990 prepared by contract accountant • Change in food inventory led to $250K surplus and deficit in adjacent years • Donations for capital purchases led to phony “operating surpluses”

20. $40M Diversified Human Services Agency • 80% govt., 10% contributed, 10% other program service • CDO has 7 reports • Senior execs heavily involved in govt funding, in other F/R as orchestrated by dev. dept. • Board, spec. events, foundation grants, corps., planned and major gifts, newsletters • Zero fundraising cost on 990. No one noticed.

21. Diversified Human Services, cont’d • CFO has 27 reports • Auditor prepares 990 • Functional expense breakout on audit; Staff charged to cost centers, cost centers charged to functional expense categories. No time tracking by category. “What would be the benefit?” • Primarily public sector funding; percentage for admin ranges 0-15% • 600 employees, 40 locations: no backup for 1-person payroll, benefits, phone support, and network support • No evaluation, internal audit, or quality improvement

22. Tentative Generalizations • Functional expense tracking of personnel time low priority, low perceived benefit • Glaring 990 errors even when prepared by auditors, CPAs • NPOs responding to perceived pressure to keep real and reported M&G but esp. fundraising ratio low • Fundamental issues with GAAP and 990 rules for donated goods and services, and capital gifts

23. Tentative Generalizations, cont’d • Personnel costs in fundraising are generally not tracked • Relative costs of different fundraising methods are generally not considered in the management of fundraising • NPOs generally classify gov’t funding as direct public support on 990, but do not classify costs of raising those funds as fundraising costs

24. Tentative Generalizations, cont’d • Hard to raise adequate funds for admin. infrastructure at all sizes • NPOs responding with varying mixes of paying low salaries and doing without • “You get what you pay for” with infrastructure

25. Survey Questions • Use of staff and volunteers • Use of fundraising information systems • Fundraising tactics • Auditing and cost allocation • Professional fundraisers • Standards & requirements of donors & others • Indirect fundraising by affiliates or federated funding orgs.

26. Research Question • Are some fundraising strategies more efficient than others? I.e., do they generate more direct contributions per dollar of fundraising expense?

27. Survey Results • Mailed surveys to 3,000+ NPOs • 1,500+ returned (51% response rate) • Sample was stratified random sample: • Stratified by: Size & Subsector • Sample and responses both closely mirror overall nonprofit sector.

28. Survey Results • Caveats and Concerns • Surveys always have several sources of possible bias: • Non-responders may differ from responders systematically in important ways. • Item non-response bias among responders. • Veracity of responses. • Perceived incentives to respond.

29. Survey Results • Caveats and Concerns Specific to this Study • Not always clear whether responders declared costs in a consistent manner. • Direct costs (printing and postage) • Direct labor costs • Indirect labor costs (CEO, etc.) • Indirect costs (rent, utilities) • Gross vs. net revenues for special events and mailings, etc.

30. Means, Medians, 1st & 3rd Quartiles: An Example

31. Tactics Summary

32. Special Events • Number of complete responses: 540 • Number stating they do not use: 559 • Incomplete data: 304 • Skipped line, matrix or “unsure”: 137 • Mean: 9.1 • Median: 3.2 • 25th & 75th Percentiles: 2.0-6.3 • % Using this tactic (among fundraisers): 62%

33. Special Events

34. Direct Mail • Number of complete responses: 342. • Number stating they do not use: 812 • Incomplete data: 245 • Skipped line, matrix or “unsure”: 141 • Mean: 36.4 • Median: 10 • 25th & 75th Percentiles: 4.5—25.9 • % Using this tactic (among fundraiser’s): 43%

35. Direct Mail

36. Telephone Calls • Number of complete responses: 35 • Number stating they do not use: 1198 • Incomplete data: 83 • Skipped line, matrix or “unsure”: 224 • Mean: 54.7 • Median: 11.9 • 25th & 75th Percentiles: 2.6-42.0 • % Using this tactic (among fundraiser’s): 9%

37. Federated Fund Raising • Number of complete responses: 79 • Number stating they do not use: 1094 • Incomplete data: 210 • Skipped line, matrix or “unsure”: 157 • Mean: 452.9 • Median: 28 • 25th & 75th Percentiles: 7.9 – 63.3 • % Using this tactic (among fundraiser’s): 21%

38. E-Mail • Number of complete responses: 9 • Number stating they do not use: 1296 • Incomplete data: 39 • Skipped line, matrix or “unsure”: 196 • Mean: 17.6 • Median: 7.5 • 25th & 75th Percentiles: 0.5-21.3 • % Using this tactic (among fundraiser’s): 4%

39. Web • Number of complete responses: 24 • Number stating they do not use: 1118 • Incomplete data: 201 • Skipped line, matrix or “unsure”: 197 • Mean: 8.8 • Median: 7.0 • 25th & 75th Percentiles: 1.8 – 10.0 • % using this tactic (among fundraisers): 16%

40. Congregations • Number of complete responses: 64 • Number stating they do not use: 1127 • Incomplete data: 153 • Skipped line, matrix or “unsure”: 196 • Mean: 50.3 • Median: 18.0 • 25th & 75th Percentiles: 6.1 – 60.3 • % Using this tactic (among fundraiser’s): 16%

41. Door to Door • Number of complete responses: 11 • Number stating they do not use: 1294 • Incomplete data: 35 • Skipped line, matrix or “unsure”: 200 • Mean: 42.1 • Median: 10.0 • 25th & 75th Percentiles: 5.0 – 77.0 • % Using this tactic (among fundraiser’s): 3%

42. Foundation Proposal Writing • Number of complete responses: 324 • Number stating they do not use: 518 • Incomplete data: 618 • Skipped line, matrix or “unsure”: 80 • Mean: 6.90 • Median: 20 • 25th & 75th Percentiles: 7.7 – 60.0 • % Using this tactic (among fundraiser’s): 69%

43. Foundation Proposal Writing

44. Government Proposals • Number of complete responses: 285 • Number stating they do not use: 681 • Incomplete data: 486 • Skipped line, matrix or “unsure”: 88 • Mean: 869.8 • Median: 27.5 • 25th & 75th Percentiles: 9.5 – 102 • % Using this tactic (among fundraisers): 56%

45. Government Proposals

46. Major Gifts • Number of complete responses: 124 • Number stating they do not use: 930 • Incomplete data: 288 • Skipped line, matrix or “unsure”: 198 • Mean: 172.7 • Median: 24.0 • 25th & 75th Percentiles: 8.4 – 100.0 • % Using this tactic (among fundraiser’s): 67%

47. Major Gifts

48. Capital Campaigns • Number of complete responses: 79 • Number stating they do not use: 1120 • Incomplete data: 140 • Skipped line, matrix or “unsure”: 201 • Mean: 427 • Median: 20 • 25th & 75th Percentiles: range: 8.0 – 53.8 • % Using this tactic (among fundraiser’s): 16%

49. Planned Giving • Number of complete responses: 80 • Number stating they do not use: 1060 • Incomplete data: 188 • Skipped line, matrix or “unsure”: 212 • Mean: 690.8 • Median: 20.0 • 25th & 75th Percentiles: 7.8 – 100 • % Using this tactic (among fundraiser’s): 20%

50. Conclusions • Fundraising Tactics matter. • They have different returns on investments. • Other project research using Form 990 data found similar results: tactics matter. • Also found that the cost of fundraising varies by size and subsector quite a bit and by age a little. • Still much unexplained.