How much to spend
What research is available on the cost of fundraising?
How much will it cost to begin a donor acquisition program?
What should it cost to acquire or renew a donor?
How much should it cost us to raise a dollar?
What is the standard "cost to raise a dollar" in various fundraising programs?
What is the average cost to raise a dollar through acquisition?
What does it typically cost to process a gift properly?
Is it OK to lose money on a mailing?
How much do nonprofits spend on marketing and fundraising?
How do nonprofits account for their fundraising costs?
How can we estimate our fundraising expenses?
What about the cost of staff time?
How much do direct mail agencies charge for handling acquisition programs?
What percentage should a fundraising consultant charge?
What percent of income should come from which sources?
What should a capital campaign cost?
How much do nonprofits spend on IT?
Are my projections realistic?
What research is available on the cost of fundraising?
What studies/research is there that give stats on how much it costs to raise a dollar?
Mal answers: You might just as well have asked the question, how can we predict how blue the sky will be tomorrow? The trouble is, fundraising costs are endlessly elastic. They depend on a whole host of factors, including the age of the organization, the methods it uses to raise money, and its public image and track record. There simply are NO reliable guidelines about how much it should cost to raise a dollar -- no matter what the self-appointed charity watchdogs might tell you.
There are circumstances in which it would be embarrassing for an organization to spend more than a dime to raise a dollar -- and those in which it would be worthwhile spending two or three dollars to raise a dollar.
The only rule of thumb is, "It depends."
Sorry I can't give you a more comforting answer.
How much will it cost to begin a donor acquisition program?
I'm researching and collecting relevant info to make decision about beginning a donor acquisition program. I've read tons of stuff, but is there one "standard" figure for what this could cost? I know there are variables like cost of consulting, brokers, etc., I can figure cost of package, postage, etc. But I'm wondering if there is a standard: it will cost you XXX to get a new donor. In other words, how do people figure out their budgets?
Mal answers: Sorry to disappoint you. The answer to your questions is no. There are no standard figures. The best course I can suggest to you is that you speak to someone who can describe the options and variables for you, so that you can get a better idea of the reality you're facing. Feel free to contact the CEO of my agency, Dan Doyle, at dan.doyle@malwarwick.com, or by phone at (510) 843-8888. He'll be happy to discuss these questions with you without any obligation on your part.
What should it cost to acquire or renew a donor?
What are some general "rule of thumb" guidelines re costs to acquire a new donor, renew a lapsed donor and obtain further gifts from active donors?
Mal answers: I'm happy to hear from you. I would be even happier if I could give you a clear and simple answer to your straightforward question. The problem is, the cost to acquire a new donor varies hugely from one nonprofit to another, as do the other two cost items.
Some organizations are blessed with highly efficient fundraising programs that allow them either to acquire new donors at a breakeven or to derive so much revenue so quickly from new donors that the effect is much the same.
Other nonprofits are forced to wait for two or three years, or even more, to recoup their investment.
With all that said, however, it's becoming increasingly common for nonprofit organizations to pay a net initial cost of between $5 and $50 to acquire an average new donor. In such circumstances, I advise clients that -- if it's worth paying, say, $30 to enroll a new donor -- it's worth paying at least that much to reactivate a donor who has lapsed.
Securing repeat gifts from current donors is another matter entirely, one that calls for a different sort of calculation. The most useful measure I've found to evaluate the cost-effectiveness of a donor resolicitation campaign is to calculate the ratio of revenue to cost. (This is an inverse measurement of the fundraising cost ratio.) If you spend, say, one dollar per donor to send a personalized appeal by mail, and the revenue from that appeal amounts to five dollars per donor, the revenue to cost ratio becomes 5:1. For most organizations, that would be a favorable ratio. (For larger nonprofits, the ratio should be much higher.) Another way to view that ratio, of course, is to say that it cost one dollar to secure a gift of five dollars. So that, at long last, is the direct answer to your question.
Thank you for writing -- and good luck!
How much should it cost us to raise a dollar?
Is there some rule of thumb on the cost of soliciting funds? How much should it cost us to raise a dollar?
Mal answers: You're only asking one of the most controversial recurring questions in fundraising! It's also one of the most badly misunderstood (which is why it's controversial). And it's complicated, too. So I can't give you an off-the-top-of-the-head response (or, rather, I won't). Suffice it to say that there is NO acceptable rule of thumb about the "correct" limit on fundraising costs — despite the efforts of some well-meaning but misguided "watchdog" groups to impose one.
For a full discussion of this issue, please consult the appendix I devoted to it in my most recent book, Revolution in the Mailbox, Second Edition (Jossey-Bass, 2004)
What is the standard "cost to raise a dollar" in various fundraising programs?
I know that as a standard, overall fundraising Cost to Raise a Dollar should be between 20 and 30 cents. How does this ring true for Annual Fund vs. other fundraising programs in a Development department -- Major Gifts, Capital Campaigns, Events and Benefits, etc. Does Annual Fund have that same standard -- or is it usually more or less in comparison?
Mal answers: The "overall fundraising Cost to Raise a Dollar" is a myth. There is NO such standard, and anyone who tells you there is one should survey the real world of fundraising in all its diversity. One organization might be embarrassed to spend more than a dime to raise a dollar, while another might be fortunate to squeak by with 40 or 50 cents on a dollar -- and both might be ethically run, well managed organizations.
This myth has been propagated by the self-appointed charitable "watchdogs," who long for simple-minded rules and guidelines, and by some major-gift fundraisers who know that raising money in large chunks is always cheaper than raising it in small ones.
The reality does not live up to this simplistic approach. The cost of fundraising varies from one nonprofit organization to another based on a host of variables: 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.
I've written extensively about this subject (and I'll probably be forced to continue doing so, since this myth is so persistent). You can read what I've written -- including information about the relative cost of various fundraising methods -- in my most recent book, The Five Strategies for Fundraising Success (Jossey-Bass, 2000), as well as in some of my earlier books. You can also learn a lot about how to evaluate your fundraising program from Jim Greenfield's books on how to assess a development program.
Best of luck to you! Thanks for writing.
What is the average cost to raise a dollar through acquisition?
What is the average cost to raise a dollar through acquisition? I have heard $1 to $2 for years now and wonder, despite all the variables, if you could give me a dollar figure with which to compare my acquisition program? Thanks.
Mal answers: Here you've asked the proverbial $64 question. To answer it usefully, I need to rephrase it somewhat. "Cost to raise a dollar" doesn't mean a lot in acquisition. "Acquisition cost" is much more meaningful. This is the gross cost of acquisition mailings minus the first-time gifts from new donors, divided by the number of new donors acquired. This is the standard yardstick in the field.
Over the years, I've worked with nonprofit organizations that have acquired new members or donors (a) for $1-2 apiece, (b) for $5-10 apiece, (c) for $25-100 apiece, and (d) at a profit! Obviously, there is no average or typical acquisition cost. Some charities pay a whole lot more to recruit new members or donors—because those donors are "worth" a whole lot more to them. They know that the revenue generated from re-solicitations over the years will add up to a considerable amount of money.
To measure this value, we calculate Long-Term Value by adding up all that revenue over the years and averaging it out over the number of donors in question. So long as that Long-Term Value is considerably greater than the acquisition cost, the organization has made a worthwhile investment (assuming, of course, that the organization can afford to wait awhile for the payoff).
I hope this has clarified and not confused the question for you. If so, please let me know. Good luck!
What does it typically cost to process a gift properly?
What does it typically cost--in dollars and cents--to process a gift properly? I remember hearing half a decade or so ago, that it took a gift of about $65 just to break even with the cost of processing. Also, do you have an idea of the industry "standard" about how much time it takes to "process" a gift. Thanks for your assistance!
Mal answers: Good questions! Unfortunately, rather than give you straightforward, monosyllabic answers, I have to take refuge in my First and Last Law of Fundraising.
It depends.
If you're running a membership program that requires you to deliver significant, tangible benefits, the cost of processing and fulfillment can run quite high. If you're simply updating a donor list and acknowledging the gift, the cost will be much more moderate. But there will still be many variations because of differences in interpretation of your word "properly."
Ideally, I believe, each gift should be acknowledged with a warm, personalized letter within a day of receiving the contribution. If it's the first gift, or a gift that represents a significant upgrade from the donor's past giving, I advocate *also* placing a phone call (at least for gifts of, say, $50 or more). Even without the phone call, the cost of processing and acknowledging the gift could well run $3-4. It's possible to find vendors who will do the job more cheaply, especially in large volumes, but I'm generally leery of cutting costs in this most important first contact with a new donor. In any case, it seems to me that it would be well worth expending $3-4 for gifts of significantly less than $65.
However, if the ideal is a one-day turnaround, even the best practitioners rarely do better than three days. Unfortunately, many of the very biggest mailers take weeks or even months to send thank-yous. That's a practice akin to shooting yourself in the foot, I believe. Donors notice these things!
Is it OK to lose money on a mailing?
This spring we did our first prospect mailing using rented lists. We got more new and renewed donors than we've had in years. The finance committee of our board, however, is already questioning the wisdom of mass direct mail (25,000 pieces for us) because the expense was slightly more than dollars received. Although I know the importance of procuring donors rather than dollars in an acquisition mailing, what can I tell my board?
Mal answers: The best answer I can give to your question is to suggest that you read a (short) book I wrote. It's titled "Raising Money by Mail," and it's easy to find a copy (or so I'm told). The reason I suggest this is that there is no short, simple argument that will convince a skeptical board member.
With that said, however, here's the gist of the argument:
Donors are more valuable than the first gifts they give a nonprofit, if only because many of them can be expected to give additional gifts -- perhaps for many years. Also, some of those donors will, in time, give much larger gifts. And it's almost always much cheaper to secure those later gifts than it was to generate the first one.
In other words, the "loss" suffered in an effort to recruit new donors is really an investment. Viewed over the long haul, it's a very meager investment, indeed. In a well-managed fundraising program, the long-term payoff from new donors can be enormous.
Good luck -- and thank you for writing
How much do nonprofits spend on marketing and fundraising?
I'm doing research on nonprofits and would like to know how much non-profits spend (dollars and percentage of budget) on marketing and fundraising? Do you know where I can find this information?
Mal answers: Good question! I wish I knew the answer. In fact, I wish there *were* one reliable answer. There isn't.
However, I'm sure that you'll get different perspectives on this matter depending on where you turn. For example, there are self-appointed "consumer watchdog" groups that tally at least some of these numbers, at least for some nonprofits. They include the National Charities Information Bureau and the charitable advisory service of the Better Business Bureau. The Independent Sector maintains mountains of data about nonprofits and publishes studies from time to time. I'm sure you can find all these organizations on the Web.
If you want to do the job right, however, I suggest you pick a representative sample—these expenditures vary wildly from one organization to another— and turn to the "Form 990" that charities file with the IRS. These forms are publicly available. I recommend looking for data for individual sectors, such as colleges & universities, hospitals,art museums, etc., rather than try to find a global number. That number might not be meaningful or helpful. No matter where you go, you'll find differences of definition of"marketing" and "fundraising."
This is, believe it or not, a complex area. In any case, if you find the answer, please let me know!
How do nonprofits account for their fundraising costs?
How does a nonprofit organization typically account for consulting fees for Fund Raising services in their budgeting? Is it appropriate to add it into the cost of a direct mail campaign? If that is so, wouldn't a percentage of staff costs also have to be included?
Mal answers: I'm not aware of any general pattern in these matters. Some organizations with which I'm familiar budget separately for consulting fees and do not include them in calculating costs and returns from specific fundraising projects. Others fully load the fundraising costs. A few even shovel in the overhead costs.
A particular organization's response to this situation is likely to relate to its sensitivity about showing high fundraising costs. Obviously, if consulting fees and overhead costs can be excluded, the cost of fundraising will be correspondingly lower -- and that will make the organization look better.
How can we estimate our fundraising expenses?
When preparing for a direct mail appeal, how should we set expenses in relation to our dollar goals for a particular appeal? Can we plan on spending a minimum or maximum percentage of money raised? Are there different guidelines for acquisition pieces vs. renewals?
Mal answers: I wish there were a simple, straightforward answer to your questions. Unfortunately, the only firm rule that applies in such situations is what I call my First and Last Law of Fundraising: It depends.
If your organization has no experience by which to judge the prospects for new mailings, there is NO way you can accurately gauge what the returns will be. If you have experience both in acquisition and in resolicitation, then -- depending on the circumstances -- you may be able to extrapolate from those numbers and come up with reasonable guesses for what to expect.
To get you closer to more satisfactory answers, all I can suggest is that you read the material on our Web site and/or consult one of the two general textbooks on direct mail fundraising: Dear Friend by Kay Partney Lautman and Henry Goldstein, or my own Revolution in the Mailbox (later revised and republished as Raising Money by Mail).
What about the cost of staff time?
The one measure you're missing I believe is the cost of staff time.
Mal answers: In my experience, the cost of staff time isn't often included in the cost of direct mail or direct response generally. By the same logic, many nonprofits also ignore the cost of an outside consultant who advises on direct marketing.
Obviously, the practice at any particular nonprofit will depend on its CFO and its auditors. But most organizations isolate overhead costs from the cost of fundraising. That's while you'll see separate slices for "fundraising" and "administration" on the pie-charts that many nonprofits use to show how much of their money goes to program.
Good luck, and thanks for writing.
How much do direct mail agencies charge for handling acquisition programs?
Mal answers: If you work with an ethical agency that's affiliated with the Association of Direct Response Fundraising Counsel (www.adrfco.org), which I highly recommend, chances are that you'll find agency fees include some or all of the following components:
* a monthly consulting and management fee, or "retainer"
* a "mailing fee" that typically runs between two and three cents per letter mailed ($20 to $30 per thousand)
* creative fees, charged on a per-project basis
**some sort of production fee, often per-project as well
* and/or a markup of 10-17.5% on production costs
It's rare to find any agency charging all these fees. Many charge several of them.
What percentage should a fundraising consultant charge?
I have been asked to do some fundraising for a private charitable organization. They will pay me a percentage of the amounts I raise. What is the going rate?
Mal answers: Unfortunately, I can't answer your question. Percentage-based compensation in fundraising is frowned upon by professionals. Our national organization, the Association of Fundraising Professionals, proscribes it in our Code of Ethics.
Most fundraisers set either a daily or an hourly rate for their time, or they set a fixed fee for the effort as a whole. The point is that you deserve to be paid for your work -- but you do not deserve (and donors don't want you to get) a significant percentage of the funds donated.
I speak from experience. More than 20 years ago, I started that way. Unfortunately (or not), the program was wildly successful -- and guess who felt ripped off, and who felt guilty? Pretty obvious, isn't it? I voluntarily changed the terms of the contract as a consequence. Philanthropy can be tricky. Donors can -- rightlfully -- become incensed if they think their money isn't being used for the purposes stated to them.
What percent of income should come from which sources?
Is there a rule of thumb for what percent of an organization's income should come from what kind of source (e.g., government, grants, individuals, bequests, etc.). I'm preparing for a series of seminars for small human services organizations and would like to nail home the need for public support and less reliance on government support (esp. considering budget problems).
Mal answers: I suggest that you focus on the vulnerability of funding from institutions — whether from government, corporations, or foundations — rather than try to assign a percentage that might fit all. Even within the definition as you put it, there would be considerable variation, depending on the income level of the community, the credibility and stature of the organization's leadership, its track record, and many other factors.
In my experience, a common problem among small human service providers is that they have virtually NO financial support from individuals. Surely, that's a problem that needs to be addressed!
What should a capital campaign cost?
Once an institution enters a capital campaign and many new development officers are hired, what is expected in terms of cost for the next few years? i.e. costs go up until two or so years then down?
Mal answers: I wish I could help you. But most aspects of capital campaigns lie outside my radius of expertise. I suggest you contact one of the capital campaign counsel firms. Many of them are members of the American Association of Fund-Raising Counsel at www.aafrc.org/. Good luck!
How much do nonprofits spend on IT?
And what percent of nonprofits have Internet access?
Mal answers: These are the sorts of question I ought to ask you! I don't pretend to know the answers, and my guesses would no doubt be less educated than yours. After all, you're the one who works for an IT company!
But if you're probing to determine how quickly the nonprofit sector is moving its operations online, I think you'll find (if you haven't already) that the movement is slow -- but slowly accelerating. I find few staffed nonprofits that don't use e-mail. Most use it extensively. Most have Web sites. The catch is, with few exceptions, they're not exploiting the technology to communicate with their donors.
Sorry -- that's the best I can do.
Are my projections realistic?
I'm a freelance copywriter who was recently asked to quote a direct mail campaign for a local hospice organization here in CT. The director of development gave me information about the goal, mailing universe, etc. that troubles me. And since I'm a long-time fan of your books and newsletters, I thought I'd check with you. The letters will be sent to 15,250 households & businesses. Goal is $100,000. Some new donors, some previous. By my calculation, even with an average gift of $45, they need approx. 2,220 gifts, which means a 15% response rate (high!)...not sure even the best-written letter out there can pull this off with the numbers I've got. Am I right to think there's trouble brewing, or just missing some vital piece of information? And is there a book I can purchase to help me learn more about this? Any help would be greatly appreciated.
Mal answers: The director of development doesn't appear to have given you enough information. For example, of the 15,000 addressees, how many are businesses, and how many individuals? (Direct mail generally performs poorly with businesses, which respond much better when directly approached.) How many are previous donors -- and how have those donors responded to previous appeals? (As you know, proven donors are far more responsive than prospects. For donors, 15% may not be at all unrealistic.) And what has been the average gift of those donors in previous campaigns? Perhaps $45 is just a fraction of what they've given before. (An average contribution upwards of $100 isn't out of the ballpark for some organizations' donor appeals.)
My advice, then, is to ask more questions and re-do your projections.
Sign Up