Measuring Fundraising Return on Investment and the Impact of Wealth Intelligence. Part 1: Why Measuring Fundraising ROI is Important

Transcription

1 Measuring Fundraising Return on Investment and the Impact of Wealth Intelligence Part 1: Why Measuring Fundraising ROI is Important

2 With today s tight economy, nonprofits face increased pressure to improve every facet of their fundraising operation in terms of productivity, efficiency and value. Organizations are increasingly cognizant of the relationship between their investment in fundraising and the return on that investment. WealthEngine has written its second edition on how to measure, implement and assess ROI within fundraising. This white paper includes expert advice, worksheets, case studies and other useful directives. Key segments of the white paper are available to you in three parts. In this first part, we explore the various factors nonprofit organizations should consider when measuring the ROI of fundraising. In Part 2, we discuss the specific measurements of ROI and best practices for tracking and measuring ROI. In Part 3, we discuss the impact of wealth intelligence on fundraising ROI. Add to your knowledge by downloading Parts 2 and 3, or a copy of the full white paper.

3 Recent research shows that donations by Americans to nonprofit groups are mirroring the slow recovery of the larger economy. According to Giving USA 2013, private charitable contributions in the U.S., which include giving to public charities and religious congregations, totaled $ billion in The single largest influence on this increase was from an $8.67 billion increase in gifts made by individuals, over Overall, however, donations are still down about 8% from their 2007 peak of $344.5 billion. Their findings also indicate that if charitable giving continues to grow at its recent rates, it will take about another six or seven years to return to pre-recession levels. Individual giving represents nearly three quarters of charitable giving in the United States, as shown in Figure 1 2. While some organizations depend largely on government grants, and others get much of their funding from corporate sponsorships or foundation grants, the vast majority of nonprofit organizations depend on individual giving to fulfill their missions. In fact, many industry experts have voiced the opinion that if individual giving could be increased by only a few percentage points, the impact would be tremendous. Those organizations that invest in fundraising and growing individual gifts are better positioned than those who maintain status quo. And important to investing in fundraising programs including major gifts, planned giving and annual giving is understanding the overall revenue and expense associated with the program or activity. This allows you to calculate your fundraising return on investment (ROI) and cost to raise a dollar (CRD). When you can demonstrate the impact that contributions 2012 Contributions by Source have on your organization and the fact that every dollar is making a difference donors are more likely to donate again and again. ROI becomes a valuable tool for nonprofits to demonstrate the value of their organization. In this paper, we explore the various factors nonprofit organizations should consider when measuring the ROI of fundraising. In Figure 1: 2012 Contributions by Source (by percentage of the total). total 2012 COnributions: $ billion. subsequent papers we will discuss the specific measurements of ROI and the impact of wealth intelligence on fundraising ROI. Measuring Fundraising Return on Investment 3

4 wealthengine.com Understanding Return on Investment (ROI) Understanding ROI is critical to a nonprofit organization s long term strategic planning regardless of their size, age, mission or the constituents they serve. In a 2013 survey by WealthEngine to assess the state of fundraising effectiveness and business analytics, 79.3% of respondents said that measuring ROI is either somewhat or very important for their organization. Having a command of ROI-related metrics helps to inform decision-making and foster a strategic approach to development planning, budgeting, staffing and other key operational areas. Measuring ROI can also help nonprofits justify their investments in staffing, research and wealth intelligence. And perhaps even more importantly, it can help maximize the efficiency of these efforts by providing the benchmark for understanding the overall cost of raising money for their organization. Who Wants to Know About ROI? WealthEngine research shows that calculating and understanding ROI is important not only for the development office, but is a topic of increasing interest among organization executives (CEO, CFO), the board and/or trustees, donors and volunteers. Transparency is critical to the cost side of the equation while return serves as a performance measuring stick. Key ROI measurements include cost-related metrics such as ROI and CRD, as well as key performance metrics across prospecting, new donors, renewals and repeat donors. In addition to measuring the results of individual fundraising activities, and then comparing the effectiveness and ROI of each activity against other activities, it is important to analyze the success of each fundraising activity against its initial goals by doing a cost-benefit analysis. Looking at this data over a number of years allows the nonprofit organization to establish its own benchmarks, uncover trends, and determine if they are progressing in the right direction. Considerations in Measuring Fundraising ROI As organizations can vary in the structure and size of their fundraising infrastructure and fundraising strategy, separate investment decisions, and separate ROI tracking, should be made for the various types of activities related to fundraising. 4

5 The key activities related to fundraising typically fall into one of these five areas: 1. Capacity-building, which includes operating expenses related to assessing an organization s capacity to raise money, strategic planning, board recruitment and development, marketing, setting up donor management systems and fundraising systems. 2. New donor acquisition efforts, such as direct mail, where nonprofits identify and target donors that make small-to-medium size gifts. 3. Individual donor renewal, or fundraising activity that produces net contributions from the second, third, etc. gifts from prior individual donors. Donor renewal focuses on retention and upgrading of prior donors. It includes major gifts, annual gifts, special gifts, capital gifts and gifts for endowment. 4. Individual planned giving, in which donors are asked to make deferred, non-cash or life-income gifts. 5. Grantseeking from institutional sources such as corporations and foundations. Furthermore, different fundraising activities have different costs per dollar raised associated. For example, if you are raising a large percentage of major gifts, then your average cost per dollar raised may be lower than an organization that is focused on raising money through its annual fund. The cost of fundraising can also vary depending on variables such as: the age of the organization, the size of the budget, the popularity of the cause, the fundraising methods used, the skills of the development staff, the strength of the organization s leadership and many more. Because there is such a wide range in costs and many variables to be considered, it is hard to place a target or benchmark on how much it should cost to raise a dollar. Depending on the circumstance, the campaign, the timing, and the goal, an organization can (and should) spend anywhere from $0.10 to over $2.00 to raise a dollar. In addition, different organization types have different channels available to them and some are more effective than others. The more important considerations are to assess the returns of each activity against the initial fundraising goal, and against other activities, and do this over a three or five-year timeframe to determine trends. Measuring Fundraising Return on Investment 5

6 wealthengine.com As Rick Dunham, President & CEO of Dunham+Company, a national fundraising consultancy with specialization working with ministries, pointed out in an interview with WealthEngine, The press has unfairly characterized the topic of ROI and donor acquisition. Some organizations will spend $100 to get a donor, but will get $1000, which is great a 10:1 return. Others will spend $20-25 and get $50, so a 2:1 return. But over time they can grow that value. So you have to look at it as a cumulative measure, and not on a single basis. Looking at net revenue is extremely important as well. It serves as the ballast for comparing other metrics. For example, you could spend $20,000 to raise $100,000, or you could spend $30,000 and raise $125,000. In the second scenario, the ROI is lower but the net revenue is higher. In today s tough economy, there is a trend towards building fundraising strategies in a highly disciplined and cost-conscious manner, and as a result, fundraising is becoming more of a science. While there is still an art to it, the science is playing a bigger role. - Norman Olshansky Fundraising Consultant and President of NFP Consulting Resources 6

7 For example, it s easy to consider how one should measure ROI and CRD when conducting a fundraising event or direct mail solicitation. In these cases, the It is important to assess the returns of time period from generating and verifying a target list each activity against to executing the campaign is relatively short, ranging the initial fundraising goal, and against from a few weeks to a few months, making the ROI equation quite linear. However, when assessing ROI other activities, and for major giving, nonprofits need to consider both do this over a three or the limitations and effects of relationship-building. five-year timeframe to Many larger donations come from years of cultivation, determine trends. so they may not be clearly evident in an annual ROI model. When assessing ROI, the costs for research and wealth intelligence are calculated in the year they are incurred, while the benefits or return are not accounted for until they actually come in the door. As a result, development offices should consider their average donor cycles and measure ROI first on a yearly basis, and also look to establish three, five and even ten year averages. The Role of Wealth Intelligence Wealth intelligence is an important component within the fundraising operations for organizations of all sizes and types. By combining the use of wealth, lifestyle and biographical research data with advanced analytics, wealth intelligence provides the foundation for targeted and successful identification, cultivation, solicitation and stewardship strategies. When performed effectively and supported by a development and marketing office that implements targeted fundraising programs, wealth intelligence can have a significant impact on fundraising ROI. It enables organizations to save time and money by identifying and focusing on their best prospects, and to raise more money in the long run. When determining the impact wealth intelligence has on ROI and CRD, it is important to consider the way in which wealth intelligence is utilized across various fundraising programs. For example, when conducting batch screenings, data can be segmented and used for multiple fundraising activities, such as annual fund and major gift campaigns. Consequently, the use of wealth intelligence and predictive models will impact the ROI of each fundraising activity you are engaged in. Measuring Fundraising Return on Investment 7

8 wealthengine.com Balancing Efficiency and Effectiveness As development offices, board members, donors and volunteers all look to have greater transparency into the costs and outcomes of fundraising, ROI metrics provide an important indication of the overall effectiveness of the organization s fundraising efforts. ROI, CRD and other performance measures allow them to determine what mix of fundraising investments, done at this stage in their fundraising strategy, gives the organization the best return over time. This information is especially important to board members, CFOs and others who have a say in how the fundraising budget is set. It also allows the nonprofit to potentially increase their wealth intelligence and analytics budget by providing the proof positive that wealth intelligence is an investment that yields positive results. 8

9 Endnotes Giving USA Highlights: An Overview of Giving in The Giving Institute. 2 Ibid. Measuring Fundraising Return on Investment 9

10 wealthengine.com