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“ Fundraising Cost Effectiveness and Performance Measurement ”

“ Fundraising Cost Effectiveness and Performance Measurement ”. By: James M. Greenfield, ACFRE, FAHP J.M. Greenfield & Associates N ewport Beach, California AFP CA Orange County Chapter Education Session October 25, 2011. “ Fundraising Cost Effectiveness and Performance Measurement ”.

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“ Fundraising Cost Effectiveness and Performance Measurement ”

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  1. “Fundraising Cost Effectivenessand Performance Measurement” By: James M. Greenfield, ACFRE, FAHPJ.M. Greenfield & Associates Newport Beach, California AFP CA Orange County Chapter Education Session October 25, 2011

  2. “Fundraising Cost Effectivenessand Performance Measurement” How Measuring Fundraising Performance Demonstrates Effectiveness and Efficiency $

  3. How Important is Fundraising Efficiency to Donors and Prospects? “Prospective donors were more likely to make a contribution when efficiency measures were provided directly with requests for funds.” “An average donation was greater when information about service efforts and accomplishments was provided.” Source: L.M. Parsons, “The Impact of Financial Information and Voluntary Disclosures on Contributions to Not-for-Profit Organizations: A Field-Based Experiment.” Bauer College of Business, University of Houston, 2001.

  4. “How was my gift money used?” “Nearly half of the respondents said that how much the recipient organizations spend on administration and fundraising influences their giving decisions.” V. Staley, Study: Americans Confident in Charities’ Integrity.”Chronicle of Philanthropy, September 10, 1998, pp. 5-12. “79 percent of respondents in this study say it is very important to know the percentage of spending that goes toward charitable programs.” “Better Business Bureau Wise Giving Alliance Donor Expectations Survey”, Princeton Survey Research Associates, 2001.

  5. What High Net-World Households Think about their giving? “Wealthy donors say they are willing to give more than they do. Nearly 75 percent of the donors said charities that spend less on administrative costs could reap additional contributions.” “And 58 percent said donations could also increase if charities showed donors the results of their gifts.” Source: Nicole Lewis, “Half of Affluent Americans Say Tax Policy Doesn’t Affect Their Giving.”Chronicle of Philanthropy, November 9, 2006, p. 14. Article based on Bank of America study of High Net-Worth Households conducted between June-September 2006 by the Center on Philanthropy at Indiana University. For the Bank of America full report, see the following: http://newsroom.bankofamerica.com/index.php?s=press_kit&item=63

  6. Session Discussion Topics: 1. Performance Measurement Criteria A. Annual Giving Programs B. Major Gift and Capital Campaign Programs C. Planned Giving Programs 2. Budgeting and Forecasting Fundraising Programs

  7. How to Measure Fundraising Results? Performance Measurement Criteria: 1. Number of solicitations 2. Number of participants 3. Gross revenue 4. Expenses - - - - - - - - - - - - - - - - - - - - 5. Percent participation 6. Average gift size 7. Net revenue 8. Average cost per gift 9. Fundraising cost 10. Return on expense

  8. How to Measure Fundraising Results?Performance Measurement Criteria Basic Data Number of solicitations = Number of direct requests made Number of participants = Number of donors responding with gifts Gross revenue = Value of gifts and contributions received Expenses = Amount of fundraising budget spent - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Performance Measurements Percent participation = Divide participants by total solicitations Average gift size = Divide revenue received by participants Net income = Subtract expenses from revenue received Average cost per gift = Divide expenses by participants Fundraising cost = Divide expenses by revenue Return on expense = Divide net income by expenses; multiply by 100 for percentage rate of return

  9. What are Fundraising’s Expense Categories? • Direct Costs:Actual expenses to carry out each solicitation method, e.g. printing, postage, meeting space & equipment rentals, food & beverages, entertainer fees, travel expenses, telephone, computer usage fees, etc. • Indirect Costs:Staff salaries and benefits, overtime, meetings, computer equipment and software, Internet access and usage fees, data processing, gift processing and gift reports, donor recognition and communications, newsletters and brochures, annual reports, supplies, telephone, travel, education and training, consultants, purchased services, etc. • Overhead Costs:Electricity, heat, insurance, rent, water, depreciation assessments, etc.

  10. What are Reasonable Cost Guidelines?(after 3 to 5 years of operations) Solicitation ActivityReasonable Cost Guidelines Direct Mail (acquisition) $1.25 to $1.50 per $1.00 raised Direct Mail (renewal) $0.20 to $0.25 per $1.00 raised Membership programs $0.20 to $0.30 per $1.00 raised Benefit events * $0.50 per $1.00 raised * Donor clubs/support groups $0.20 to $0.30 per $1.00 raised Volunteer-led solicitations $0.10 to $0.20 per $1.00 raised Corporate solicitations $0.20 per $1.00 raised Foundation solicitations $0.20 per $1.00 raised Capital campaigns $0.10 to $0.20 per $1.00 raised Planned giving programs $0.20 to $0.30 per $1.00 raised * (gross revenue and direct costs only) Source: James M. Greenfield. Fundraising Responsibilities of Nonprofit Boards.BoardSource(Governance Series, #4) Second Edition, 2009, p. 54.

  11. Performance Measurement Criteria“Why Do Fundraising Costs Vary?” • “The popularity of the cause or issue • The organization’s age • The fund raising methods used • How much money the organization raises • The skills and experience of the development department • Competition • The character of the constituency • The charisma of the leader • The zeal of the fundraiser” Source:Mal Warwick, “The Five Strategies for Fund Raising Success.”San Francisco: Jossey-Bass Publishers, 2000, pp. 254-256.

  12. Performance Measurement Examples Annual Giving Programs 1. Results Analysis of Direct Mail Program 2. Results Analysis of Membership Program 3. Results Analysis of Benefit Events

  13. Results Analysis of aFirst-Time Direct Mail Effort FullFirst TestingMail OutRenewalTotals Number of solicitations 80,575 396,467 1,156 478,198 Number of participants 1,156 3,653 914 5,723 Gross revenue $35,758 $116,911 $31,064 $183,733 Expenses $32,641 $ 99,000 $ 1,827 $133,468 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percent Participation 1.43% 0.92% 79% 1.20% Average gift size $30.93 $ 32.00 $33.99 $32.10 Net income $3,117 $17,911 $29,237 $50,265 Average cost per gift $28.24 $27.10 $2.00 $23.32 Fundraising cost $0.91 $0.85 $0.06 $0.73 Return on expense 10% 18% 1,600% 38%

  14. Results Analysis of an Active Membership Program NewRenewalUpgradingTotal Number of Solicitation 4,250 650 650 5,550 Number of participants 125 525 68 718 Gross revenue $12,900 $58,500 $20,000 $91,400 Expenses $8,500 $3,280 -n/a- $11,780 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percent participation 4.17% 80.77% 10.46% 31.80% Average gift size $ 103 $ 111 $ 294 $ 169 Net income $4,400 $55,220 $20,000 $79,620 Average cost per gift $68.00 $6.25 -n/a- $16.41 Fundraising cost $0.66 $0.06 -n/a- $ 0.13 Return on expense 52% 1,684% -n/a- 676%

  15. Results Analysis of Annual Benefit Events Golf Black-Tie TournamentDinnerTotals Number of Solicitation 3,750 8,650 12,400 Number of Participants 180 450 630 Gross revenue $ 83,250 $159,336 $242,586 Expenses $ 27,444 $ 92,651 $120,095 Percent participation 21% 19% 20% Average gift size $ 462.50 $ 354.08 $ 385.06 Net income $ 55,806 $ 66,685 $125,491 Average cost per gift $ 153 $ 206 $ 191 Fundraising cost $ 0.33 $ 0.58 $ 0.50 Return on expense 203% 72% 105%

  16. Summary Report Results Analysis for Annual Giving Programs Direct Membership Benefit Mail Program Events Totals Solicitations 478,198 5,550 12,400 496,148 Participation 5,723 718 630 7,071 Gross Revenue $183,733 $91,400 $242,586 $517,719 Expenses $133,468 $11,780 $120,095 $265,343 Percent participation 1.2% 16.2% 20% 12.5% Average gift size $ 32 $127 $385 $181 Net income $50,265 $79,620 $125,491 $254,376 Average cost per gift $23 $16 $191 $92 Fundraising cost $0.73 $0.13 $0.50 $0.51 Return on expense 38% 676% 105% 273%

  17. Performance Measurement CriteriaMajor Gifts and Capital Campaign Programs • Researching Major Gift Prospects • Monitoring Major Gift Activities • Monitoring Major Gift Performance • Results Analysis of Major Gift Program • Results Analysis of Capital Campaigns

  18. Research Activities for Major Gift Prospects 20102011 Number of major gift prospects 135 155 being researched Number of major gift prospects 77 108 qualified from research Number of trained/experienced 24 46 personal solicitation volunteers available for assignment Number of prospects assigned 47 86 to trained volunteers

  19. Monitoring Major Gift Activities Cultivation Plans and Solicitation Strategies 20102011 Number of prospects with cultivation plans 33 72 Number of prospects with volunteer teams 27 68 Number of teams engaged in cultivation 12 48 Number of teams in active solicitation 15 20 Number of major gift donor decisions 6 14 Number of major gift rejections 5 20 Value of major gifts received $225K $665K Value of major gift pledges received $100K $300K

  20. Monitoring Major Gift Activities Donor Recognition and Donor Stewardship 20102011 Number of donor recognition events 4 12 in progress Number of recognition events completed 2 8 Number of donor stewardship plans 2 4 in preparation Number of six-month reviews conducted 2 4 Number of six-month reviews scheduled 2 8

  21. Results Analysis for Major Gifts Program 2 yrs Last This Cum. AgoYearYearTotals Number of participants 12 18 23 53 Gross revenue $172,500 $215,000 $358,000 $745,500 Expenses $ 16,850 $ 18,200 $ 18,900 $ 53,950 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percent Participation 33% 46% 53% 45% Average gift size $ 14,375 $ 11,944 $ 15,565 $ 14,066 Net income $155,650 $196,900 $339,100 $691,550 Average cost per gift $ 1,404 $ 1,011 $ 822 $ 1,018 Fundraising cost $ 0.10 $ 0.08 $ 0.05 $ 0.07 Return on expense 924% 1,081% 1,794% 1,282%

  22. Results Analysis of Capital Campaigns #1#2#3 Number of participants 1,422 6,075 11,829 Gross revenue $880,000 $1,089,450 $23,450,000 Expenses $107,550 $ 259,650 $ 1,875,750 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percent participation 59% 48% 77% Average gift size $619 $179 $1,982 Net income $772,450 $829,800 $21,574,250 Average cost per gift $76 $43 $159 Fundraising cost $0.12 $0.24 $0.08 Return on expenses 718% 320% 1,150%

  23. Performance Measurement CriteriaPlanned Giving Programs • Monitoring Activity in Planned Giving • Results Analysis in Planned Giving • Accountability for Planned Giving Performance

  24. Monitoring Activity in Planned Giving Number of Contacts Stimulated by: MeetingsContactsGifts Newsletters/Annual Report requests 26 6 1 Direct mail requests for information 155 18 2 Seminar/workshop attendees 255 39 3 Board members referrals 8 6 0 Development committee referrals 12 6 1 Annual gift committee referrals 33 18 2 Major gift committee referrals 14 6 1 Planned gift committee referrals 6 0 0 Current planned gift donor referrals 6 4 2 Other contacts: 4 1 0 Totals: 519 104 12

  25. Monitoring Activity in Planned Giving New Planned Gifts Completed NumberDonor AgeValue (FMV) Will/Living Trust 2 72 - 79 $300,000 Pooled fund 1 65 25,000 Remainder unitrust 1 75/73 250,000 Annuity trust 3 68 (avg.) 250,000 Gift annuity 3 66 (avg.) 85,000 Charitable lead trust 0 0 0 Life estate 1 82/80 750,000 Life insurance policy 172/7050,000 Totals: 12 72 (avg.) $1,710,000

  26. Results Analysis In Planned Giving (000 omitted) Yr 1Yr 2Yr 3Totals Number of Donors 8 9 12 29 Gift Values (FMV) $165 $1,295 $1,710 $3,170 Expenses $129 $ 165 $ 182 $ 436 ------------------------------------------------------------------------------------ Percent Participation 38% 61% 42% 47% Average gift size $20.6 $143.9 $142.5 $109.3 Net income $36 $1,130 $1,528 $2,734 Average cost per gift $ 16 $ 18 $ 15 $ 15 Fundraising cost $ 0.78 $ 0.13 $ 0.11 $ 0.14 Return on expense 28% 685% 840% 627%

  27. Summary Performance:“Bottom-Line Analysis” 2 yrs Last This AgoYearYear Direct Mail $127,585 $149,889 $183,733 Membership 68,800 76,450 91,400 Benefit Events 198,555 239,545 242,586 Major Gifts 172,500 215,000 358,000 Capital Campaign 198,000 380,500 880,000 Planned Giving 165,0001,295,5001,710,000 Gross Revenue: $930,440 $2,356,884 $3,465,719 Minus FR Budget $379,240$433,101$559,793 Net Revenue $551,200 $1,923,783 $2,905,926 Fundraising Cost $0.41 $0.18 $0.16 Return on Expense 145% 449% 519%

  28. Summary Multi-Year Report: Overall “Growth in Giving” Analysis Annual Annual Cum. (ooo omitted) 2 Yrs Last Rate This Rate Growth AgoYear % Year % % Participation 1,355 1,605 18 1,799 12 31 Gross revenue $ 448 $ 507 13 $ 571 12 26 Expenses $ 116 $ 123 6 $ 131 7 13 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Percent Participation 39% 44% 13 52% 18 31 Average gift size $ 331 $ 316 -4 $ 318 0.4 -4 Net income $ 332 $ 384 16 $ 439 14 30 Average cost per gift $ 86 $ 76 -11 $ 83 -5 -15 Cost of fund raising $0.26 $0.24 -6 $0.23 -5 -11 Return 285% 311% 9 333% 7 16

  29. 2. Budgeting and ForecastingFundraising Results 2 yrs Last Current Budget AgoYearYearRequest Labor cost $66,009 $74,164 $79,778 $85,250 Non-labor cost 43,59450,02651,32655,000 Total budget $109,603 $124,190 $131,104 $140,250 Gross revenue $342,738 $563,384 $603,100 $660,000 Minus budget - 109,603-124,190-131,104- 140,250 Net income $233,135 $438,194 $471,996 $519,750 Fundraising cost $0.32 $0.22 $0.22 $0.21 Return on expenses 213% 354% 360% 371%

  30. Forecasting Gift Results(Three Year Summary Results) • Annual Giving ProgramsEst. 2 yrs Last ThisNext AgoYearYearYear Direct mail (new) $27,550 $31,250 $35,500 $42,000 Direct mail (renew) 55,880 69,500 76,500 85,000 Membership dues 40,400 44,000 48,500 55,000 Benefit events (3) 45,500 53,400 59,600 68,000 Volunteer-led solicitation 58,50065,50082,00090,000 Sub-Total: $227,830 $263,650 $302,100 $340,000

  31. Forecasting Gift Results(Three Year Summary Results) Est. 2 yrs Last This Next AgoYearYearYear 1. Annual Giving Programs Sub-Totals: $227,830 $263,650 $302,100 $340,000 • Major Gifts Programs Corporations $13,500 $28,000 $45,500 $55,000 Foundations 8,000 35,500 65,000 80,000 Individuals 35,000 78,000 145,000 160,000 Bequests received 5,00025,00045,00025,000 Sub-Totals: $61,500 $167,500 $301,000 $320,000 --------------- -------------- --------------- ---------------- Grand Total: $289,330 $431,150 $603,100 $660,000

  32. Forecasting Gift Results Summary Budget Proposal: Annual and Major Gifts Programs 2 yrs Last This Est. Next AgoYear YearYear Gross Revenue $289,330 $431,150 $603,100 $660,000 Direct costs $ 68,015 $ 72,100 $ 79,778 $ 85,250 Indirect costs 29,55046,22551,32655,000 Sub-Total: $107,565 $118,325 $131,104 $140,250 Net Income: $181,765 $312,825 $471,996 $519,750 Fundraising costs $0.37 $0.27 $0.22 $0.21 Return on expense 169% 354% 360% 371%

  33. Forecasting Gift Results Estimated Results Analysis #1 • Gross revenue increased $53,765 • Net income increased $47,890 • Fundraising cost increased to $0.23 • Return on expense decreased from$369% to338% What if we asked for another $10,000 for this fundraising budget?

  34. Forecasting Gift Results 2 yrs Last Current Budget AgoYearYearRequest Labor cost $66,009 $74,164 $ 80,165 $85,259 Non-labor cost 43,59450,02654,21065,000 Total budget $109,603 $124,190 $134,375 $150,259 (+ $15,884) Gross revenue $342,738 $507,855 $561,235 $700,000 Minus budget - 109,603-124,190-134,375-150,259 Net income $233,135 $383,665 $426,860 $549,741 (+ $122,881) Fundraising cost $0.32 $0.24 $0.21 $0.21 Return on expenses 213% 309% 369% 366%

  35. Forecasting Gift Results Estimated Results Analysis #2 1. Gross revenue increased from $561,235 to $700,000 2. Net income increased from $426,860 to$549,741 3. Fundraising cost decreased from $0.23 to $0.21 4. Return on expense increased from 338% to 366% Should we investmorebudget in fundraising?

  36. Forecasting Gift Results Should we invest any more budget in fundraising? Answer: “The reality is that most institutions aren’t spending enough on fundraising because their leaders fear public criticism or donor backlash. We need to talk instead about why institutions are under-investing in themselves. That’s the real challenge.” Source: Scott Jaschik, “Price Check” in CASE Currents, January 4, 2005, p. 31.

  37. “Fundraising Cost Effectivenessand Performance Measurement” In Summary: • Fundraising analysis is necessary • Fundraising results will be varied • Forecasting results can be measured • Forecasting results can be predicted • Results analysis can demonstrate efficiency • Results analysis can demonstrate effectiveness

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