Fundraising Tactics & Efficiency: An Exploratory Study Using the IRS Forms 990

1. Fundraising Tactics & Efficiency: An Exploratory Study Using the IRS Forms 990 Thomas H. Pollak & Mark HagerCenter on Nonprofits and Philanthropy, The Urban Institute Patrick Rooney & Eugene R. TempelCenter on Philanthropyat Indiana University Association of Healthcare Professionals (AHP) * * * * * * * * * * September 2001 Chicago, IL

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. National Charities Information Bureau American Institute of Philanthropy Philanthropic Advisory Service Overhead Efficiency No more than 40% of Total Expenses to Administration and Fundraising No more than 40% of Total Expenses to Administration and Fundraising No more than 50% of Total Expenses to Administration and Fundraising Fundraising Efficiency Fundraising Expense should be reasonable in relation to the Contributions received Fundraising Expenses should not exceed 35% of Contributions received Fundraising Expenses should not exceed 35% of Contributions received

4. 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.

5. Research Questions • Are some fundraising strategies more efficient than others? I.e., do they generate more direct contributions per dollar of fundraising expense? • Do fundraising costs vary by mission, size, age, and/or location (urban, rural, metro)? • Can the 990s be used to assess the efficiency of different tactics?

6. Phone Phone solicitation Printing, and Postage & shipping Mailings to donors/members and for donor acquisition Professional fundraisers Use of paid solicitors or consultants, typically for direct mail or phone solicitation Comp. of officers, dirs., & key employees Executive director & other “key employees,” directors, & officers’ fundraising activities Special events Annual dinners, auctions, and other special events that serve as focal point for fundraising efforts Personnel costs Personnel costs for fundraising staff and any other staff involved in fundraising efforts Travel Large donor, corporate and private foundation fundraising? Conferences & meetings Training of fundraising staff? Fundraising Tactics and the IRS Form 990

7. Limitations of the Form 990 • New donor acquisition vs. renewal • Foundation vs. corporate vs. individual solicitations • Major and planned gifts

10. Efficiency defined as (direct public support + gross special event inc.) / (total fundraising expenses + special event expenses).

16. Table 2: Distribution of Organizations by Size and Industry

17. Table 3: Distribution of Overhead Expenses as a Proportion of Total Revenues

18. Table 4: Mean Overhead Efficiency by Size and Industry

19. Table 5: Distribution of Fundraising Expenses as a Proportion of Contributions

20. Table 6: Mean Fundraising Efficiency by Size and Industry

21. An Alternative Measure for Key Employee Fundraising • Does fundraising get the attention it needs from key employees? • 24% of organizations that reported fundraising expenses reported fundraising expenses for key employees • For organizations reporting key employee fundraising expenses: • 16 % of expenses for key employees were allocated to fundraising • 10 % is the median allocation of key employee expenses allocated to fundraising

22. Conclusions • Tactics matter • Type of service or beneficiary matters • Age matters • Size matters • Mission matters • Form 990 data appears to provide a useful tool for comparing fundraising tactics for different types of organizations

23. Next Steps • Use Herfendahl measure of tactic diversity • Assess breakout of sector into 3 groups using the Chow test • Other variables to test: • Management & general expenses • Executive compensation • Other fundraising “tactics” or line items (e.g., travel, meetings) • Trends in fundraising efficiency • Complete survey on overhead costs (Fall 2001)