If you haven’t checked out my first and second posts in the series of 5 Culture Problems That Can Kill Your Fundraising, check those out now! This series is adapted from a presentation my good friend Derric Bakker, CEO of Dickerson Bakker & Associates gave at the 2017 Association of Gospel Rescue Missions conference.
Today we’ll look at the 3rd culture problem that can kill your fundraising…
#3 We don’t INVEST in Philanthropy!
Sure, you might spend money on fundraising. But it’s a rare nonprofit that approaches development through the lens of investment.
Here’s an example. Let’s say an organization budgets $100,000 in expenses with a goal of generating new donors at a 0.75:1 ROI. To their surprise, the acquisition effort works better than they expected, and they actually generate $125,000 in revenue instead of just $75,000. That’s a 1.25:1 ROI! The savvy investor, understanding that the market is hot, might take those extra earnings and invest them right back into more acquisition so that they can grow their donor base and long-term revenue more quickly.
But whoa…that’s not something the typical nonprofit would ever do! Instead, that extra $50k would go right into the general operating account and be spent on other priorities. And in fact, the next time that organization embarks on an acquisition campaign, the expectation will be set that they need to net $50k in order to be successful (in fact, they’d probably build a budget assuming that windfall)!
Another example of this is the nonprofit that NEVER looks at the income side of the ledger, and only makes decisions based on the expense side. This happens every day. In fact, there’s not a week that goes by that I don’t talk to a nonprofit CEO, board member, or development officer who is concerned about the cost of their fundraising efforts, but focuses only minimally on the income side of the equation. In fact, the conversation often goes something like this…
Nonprofit Leader: Wow, your line item is always the largest one in our budget! How do we cut that down?
Me: You’re right — it’s likely that the income we deliver against your budget is the single largest income line in your entire budget. Why in the world would you want to cut it?
Nonprofit Leader: Ha ha ha. No, I meant the expense budget.
Me: Well heck yes, we’re probably the largest cost in your budget other than staffing. But that delivers the HUGE corresponding revenue line on the income side of your budget. Please tell me this…how much income would you be comfortable giving up in order to reduce your expenses?
At this point, the conversation usually dies down as the CEO, board member, or development officer struggles to understand why they have to give up income if they are cutting fundraising costs.
The other place where this is frequently a problem is in nonprofit hiring decisions. Instead of sacrificing a little more operating income in order to hire the very best talent, organizations often adopt a poverty mentality when hiring. Instead of getting the best person available, I’ve heard countless CEO’s and DOD’s say things like, “well, that person was really cheap — I was able to get her, AND still save the organization money.” The only problem is, you get what you pay for. This is one of the key reasons why the rate of turnover (this, and a lack of investment in onboarding and ongoing training/development) is so high in the nonprofit sector.
These issues are a result of failing to think about your spending on fundraising as a strategic investment in the future of your organization. The greatest risk of not approaching philanthropy as an investment is that it allows you to make very short-sighted decisions. Decisions merely based on costs rather than on long-term revenue and growth potential.