Research Findings on the Cost of Fundraising

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Research Findings on the Cost of Fundraising
Thomas H. PollakCenter on Nonprofits and
Philanthropy, The Urban Institute 2004 MIP User
Conference October
2004 Austin, TX
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The ProjectNonprofit Fundraising
Administrative CostsAssessing 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

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Multiple Research Phases

• Analysis of IRS Form 990 data, n228,000
• Survey of fundraising and accounting practices,
  n1500
• Detailed case studies, n9

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Research for Decision-Making

• Do you have the right staffing and resources for
  the job?
• Are we missing opportunities to improve our
  fundraising?
• Is there something that the more successful
  organizations do that we dont?
• Help nonprofits and their funders understand what
  it really costs (including staff time) to raise
  money using different fundraising methods
• Other long-term benefits from comparable
  high-quality data on fundraising costs

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Findings from 990 Analysis

• 37 of organizations with more than 50,000 in
  private contributions reported zero fundraising
  and special event costs
• Of those reporting costs, more than ¼ received
  more than 15 for each dollar spent on
  fundraising
• The median was 5.40
• Another quarter of organizations received less
  than 2 for each dollar spent

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Perils and Limitations of the Research

• What are we really measuring? Are organizations
  reporting consistently?
• Broad analyses is no substitute for local
  knowledge
• The cost of changing methods Dont tinker with
  what works

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Case Study Design

• Goal ten case studies
• Diverse org. types, sizes and locations
• 3 reporting zero fundraising costs
• Best practice sites
• Draw from survey respondents
• Review 990s, surveys, and audits
• Onsite interviews with CEO, CFO, CDO

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Interview Protocol, CFO (2 hr)

• Sources and uses of funds
• Restrictions, fundraising methods, admin coverage
• Functional expense tracking
• Joint costs, time tracking, allocation method and
  rationale
• Infrastructure costs
• Who pays, adequacy, perceived pressure to keep
  low
• External reporting audit and 990
• Internal financial management
• Budgeting, internal reports, distribution,
  appetite
• Finance department
• staffing, technology, outside supports

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Interview Protocol, CEO (1 hr)

• Financial management
• Whos involved, what they see, how often, how
  its used, finance dept.
• Fundraising and Development
• Information available for management, development
  dept.
• Covering admin infrastructure
• Difficulty, adequacy, gaps, reporting pressures

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Interview Protocol, CDO (1 hr)

• Sources of funding
• Methods of fundraising used
• Management and coordination of methods, people
  involved in F/R
• Department staffing, technology, outside supports
• Planning and information to manage F/R
• Costs and revenues
• Raising money for admin infrastructure
• Perceived pressure to keep admin costs down

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1M Domestic Abuse Agency

• 2/3 revenue contributed, 1/3 govt. contracts, no
  development staff, CEO very involved in F/R
• A few corporate board members deliver significant
  special event sponsorships and program grants
• UW, newsletter, corp and foundation grants,
  thrift shop
• No personnel costs for F/R on audit or 990

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Domestic Abuse Agency, contd

• Im not an accountant, but I play one at work.
• Functional expense reporting a work in
  progress no time tracking by functional expense
  area
• On MG, our auditor says theres no definition.
  You can do whatever you want.
• 990 prepared by auditor

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5M Community Development Corp

• 70 program service revenue, 30 contributed
• 2 FTE development department
• Foundation grants, corp support for spec events,
  annual appeal, newsletter, UW
• Senior execs deeply involved in fundraising, but
  no salary allocated to F/R

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5M CDC, contd

• CFO plus 3.5 FTE accounting department
• Staff assigned to cost centers, cost centers
  assigned to functional expense categories
• No time tracking by category
• Anything not at the parent is program
• Auditor prepares 990
• Lack of infrastructure funding handled by paying
  low salaries and doing without

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Literacy Agency of Arguable Size

• 50 revenue from govt., 45 contributed
• 1 development person plus vol. coord. CEO very
  involved in F/R
• Foundation grants, UW, spec. events, mail appeals
  and newsletter, local corps.
• Development person charges time to program to
  keep F/R ratio down
• Grant budgets avoid too much in certain line
  items and all hard-to-explain line items, focus
  on direct program costs

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Literacy Agency, contd

• Use of volunteer tutors means a 1.1 million org
  on audit, 400K org on 990
• Admin and F/R ratios a wasteful 30 based on
  990, efficient 12 based on audited financials
• Agency has been threatened with cutoff by a
  funder using 990
• No trained financial staff person 1 admin
  director
• Timesheets support allocation by functional
  expense category

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Literacy Agency, contd

• Class Z office space, very junior staff, cast-off
  furniture, etc.
• Lack of infrastructure funding handled by paying
  low salaries and doing without

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2.5M Food Bank

• 60 govt funding, 40 contributed
• 3-day/week grantwriter CEO relationships
  important to many funding sources
• Foundation grants, spec. events, newsletter, UW,
  churches, local corps.
• Zero fundraising cost on 990 was a mistake
• All admin staff share one office, roof leaks,
  broken furniture
• Low salaries We couldnt replace X for what we
  pay her.
• The advantage of running a thrifty organization
  is that you continue to get support.

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Food Bank, contd

• 2M food donations, 500k cash expenses
• 2.2 FTE admin and F/R staff allocated across
  functional expense categories by fixed percent
  no time tracking
• 990 prepared by contract accountant
• Change in food inventory led to 250K surplus and
  deficit in adjacent years
• Donations for capital purchases led to phony
  operating surpluses

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40M Diversified Human Services Agency

• 80 govt., 10 contributed, 10 other program
  service
• CDO has 7 reports
• Senior execs heavily involved in govt funding, in
  other F/R as orchestrated by dev. dept.
• Board, spec. events, foundation grants, corps.,
  planned and major gifts, newsletters
• Zero fundraising cost on 990. No one noticed.

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Diversified Human Services, contd

• CFO has 27 reports
• Auditor prepares 990
• Functional expense breakout on audit Staff
  charged to cost centers, cost centers charged to
  functional expense categories. No time tracking
  by category. What would be the benefit?
• Primarily public sector funding percentage for
  admin ranges 0-15
• 600 employees, 40 locations no backup for
  1-person payroll, benefits, phone support, and
  network support
• No evaluation, internal audit, or quality
  improvement

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Conclusions

• Functional expense tracking of personnel time low
  priority, low perceived benefit
• Glaring 990 errors even when prepared by
  auditors, CPAs
• NPOs responding to perceived pressure to keep
  real and reported MG but esp. fundraising ratio
  low
• Fundamental issues with GAAP and 990 rules for
  donated goods and services, and capital gifts

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Conclusions, contd

• Personnel costs in fundraising are generally not
  tracked
• Relative costs of different fundraising methods
  are generally not considered in the management of
  fundraising
• NPOs generally classify govt funding as direct
  public support on 990, but do not classify costs
  of raising those funds as fundraising costs

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Conclusions, contd

• Hard to raise adequate funds for admin.
  infrastructure at all sizes
• NPOs responding with varying mixes of paying low
  salaries and doing without
• You get what you pay for with infrastructure

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Survey Questions

• Use of staff and volunteers
• Use of fundraising information systems
• Fundraising methods
• Auditing and cost allocation
• Professional fundraisers
• Standards requirements of donors others
• Indirect fundraising by affiliates or federated
  funding orgs.

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Research Question

• Are some fundraising strategies more efficient
  than others? I.e., do they generate more direct
  contributions per dollar of fundraising expense?

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Survey Results

• Mailed surveys to 3,000 NPOs
• 1,500 returned (51 response rate)
• Sample was stratified random sample
• Stratified by Size Subsector
• Sample and responses both closely mirror overall
  nonprofit sector.

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Survey Results General Caveats and Concerns

• Surveys always have several sources of possible
  bias
• Non-responders may differ from responders
  systematically in important ways.
• Item non-response bias among responders.
• Veracity of responses.
• Perceived incentives to respond.

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Survey Results General Caveats and Concerns

• Not always clear whether responders declared
  costs in a consistent manner
• Direct costs (printing and postage)
• Direct labor costs
• Indirect labor costs (CEO, etc.)
• Indirect costs (rent, utilities)
• Gross vs. net revenues for special events and
  mailings, etc.

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Means, Medians, 1st 3rd Quartiles An Example
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Special Events

• Pct using this method (among fundraisers) 60
• Number of complete responses 540
• Mean 9.1
• Median 3.2
• 25th 75th Percentiles 2.0-6.3

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Special Events
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Direct Mail

• Pct using this method (among fundraisers) 59
• Number of complete responses 541
• Mean 36.4
• Median 10
• 25th 75th Percentiles 4.525.9

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Direct Mail
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Telephone Calls

• Pct using this method (among fundraisers) 23
• Number of complete responses 61
• Mean 54.7
• Median 11.9
• 25th 75th Percentiles 2.6-42.0

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Federated Fund Raising

• Pct using this method (among fundraisers) 21
• Number of complete responses 80
• Mean 452.9
• Median 28
• 25th 75th Percentiles 7.9 63.3

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E-Mail

• Pct using this method (among fundraisers) 4
• Number of complete responses 10
• Mean 17.6
• Median 7.5
• 25th 75th Percentiles 0.5-21.3

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Web

• Pct using this method (among fundraisers) 17
• Number of complete responses 24
• Mean 8.8
• Median 7.0
• 25th 75th Percentiles 1.8 10.0

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Congregations

• Pct using this method (among fundraisers) 16
• Number of complete responses 64
• Mean 50.3
• Median 18.0
• 25th 75th Percentiles 6.1 60.3

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Door to Door

• Pct using this method (among fundraisers) 3
• Number of complete responses 11
• Mean 42.1
• Median 10.0
• 25th 75th Percentiles 5.0 77.0

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Foundation Proposal Writing

• Pct using this method (among fundraisers) 64
• Number of complete responses 324
• Mean 6.90
• Median 20
• 25th 75th Percentiles 7.7 60.0

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Foundation Proposal Writing
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Government Proposals

• Pct using this method (among fundraisers) 53
• Number of complete responses 287
• Mean 869.8
• Median 27.5
• 25th 75th Percentiles 9.5 102

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Government Proposals
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Major Gifts

• Pct using this method (among fundraisers) 30
• Number of complete responses 124
• Mean 172.7
• Median 24.0
• 25th 75th Percentiles 8.4 100.0

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Major Gifts
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Capital Campaigns

• Pct using this method (among fundraisers) 16
• Number of complete responses 79
• Mean 427
• Median 20
• 25th 75th Percentiles range 8.0 53.8

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Planned Giving

• Pct using this method (among fundraisers) 20
• Number of complete responses 80
• Mean 690.8
• Median 20.0
• 25th 75th Percentiles 7.8 100

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Conclusions

• Fundraising Methods matter.
• They have different returns on investments.
• Other project research using Form 990 data found
  similar results methods matter.
• Also found that the cost of fundraising varies by
  size and subsector quite a bit and by age a
  little.
• Still much unexplained.

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Next Steps

• Work with fundraisers, CPAs, and nonprofits to
  improve their understanding of reporting
  potential and problems
• Improve the quality of reporting so that more
  detailed information can be used for better
  decision-making in the future

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More Resources
http//www.coststudy.org