Cost Effectiveness

By | May 26, 2017

How cost-effective is your fundraising?

Balance ScalesHave you ever thought about this? This is an absolutely crucial concept for you to wrap your mind around. Once you figure this out, you will probably change the way you raise money forever.

Your cost effectiveness is a ratio that measures the amount of money it costs you raise one dollar. The lower the number, the more cost-effective your program.   Here are the equations:

Cost effectiveness = the amount you spend / the gross income from your fundraising program

A couple of examples:

Let’s say you have a gala black tie event. You raise $50,000 at the event. The cost of the event, after you figure in food, venue, staff time, marketing, paper goods, entertainment, etc., comes to $25,000. Divide your cost by the total raised ($50,000) to get a result of $0.50. In other words, it cost you $0.50 for every dollar you raised at your event.

Let’s try another one. You hire a grant writer. Your primary costs are salary and benefits, plus a computer and an internet database. The total cost for the staff position is $70,000. The grant writer does a fairly good job and raises $300,000 per year. $70,000 / $300,000 = $0.23. For every $0.23 you spend on your grant writer, your fundraising program brings in $1.

Using this technique to measure the effectiveness of your fundraising programs is super important. It will help you see where you need to invest your time and energy. Looking at the two examples above, it makes more sense to spend $70,000 on a grant writer who will bring in $300,000 than $75,000 on three events that will bring in $150,000. Focusing on cost effectiveness helps you make good decisions.

Charitable enterprises like bake sales and rummage sales are hard to quantify using this model. You’re not running your budget off of bake sales, unless you’re a religious order that runs an actual bakery. In that case, you’re going to be doing business analysis including profit and loss statements. Totally different from fundraising.

For a bake sale that raises less than $1,000, financial gain is not your primary consideration. The volunteer leaders are trying to do something good that brings people together and raises a little money. Perhaps the best way to measure the cost effectiveness of a charitable enterprise is by looking at how well they bring people together. If people enjoy it, great, but if it causes stress and tension in the community, get rid of it.

Need some new ideas on how to fundraise? Check out The Fundraiser’s Playbook and find the fundraising strategy that will work best for you!

Image courtesy of Andrew Gustar, via Creative Commons License, some rights reserved.

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