Fundraising Tactics

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Fundraising Tactics Efficiency Research
Findings
Thomas H. Pollak Center on Nonprofits and
Philanthropy, The Urban Institute
Patrick Rooney Center on Philanthropy,Indiana
University
Association of Fundraising Professionals (AFP)
March 2004 Seattle
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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

3
Multiple Research Phases

• Analysis of IRS Form 990 data, n228,000
• Survey of fundraising and accounting practices,
  n1500
• Detailed case studies, n10

4
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 cost (including staff time) to raise
  money using different fundraising tactics
• 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 tactics Dont tinker with
  what works

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Case Study Design

• Goal Ten case studies (five completed)
• 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

13
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

15
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

18
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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Tentative Generalizations

• 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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Tentative Generalizations, 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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Tentative Generalizations, 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 tactics
• 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

• 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

• Caveats and Concerns Specific to this Study
• 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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Tactics Summary
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Special Events

• Number of complete responses 540
• Number stating they do not use 559
• Incomplete data 304
• Skipped line, matrix or unsure 137
• Mean 9.1
• Median 3.2
• 25th 75th Percentiles 2.0-6.3
• Using this tactic (among fundraisers) 62

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Special Events
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Direct Mail

• Number of complete responses 342.
• Number stating they do not use 812
• Incomplete data 245
• Skipped line, matrix or unsure 141
• Mean 36.4
• Median 10
• 25th 75th Percentiles 4.525.9
• Using this tactic (among fundraisers) 43

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Direct Mail
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Telephone Calls

• Number of complete responses 35
• Number stating they do not use 1198
• Incomplete data 83
• Skipped line, matrix or unsure 224
• Mean 54.7
• Median 11.9
• 25th 75th Percentiles 2.6-42.0
• Using this tactic (among fundraisers) 9

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Federated Fund Raising

• Number of complete responses 79
• Number stating they do not use 1094
• Incomplete data 210
• Skipped line, matrix or unsure 157
• Mean 452.9
• Median 28
• 25th 75th Percentiles 7.9 63.3
• Using this tactic (among fundraisers) 21

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E-Mail

• Number of complete responses 9
• Number stating they do not use 1296
• Incomplete data 39
• Skipped line, matrix or unsure 196
• Mean 17.6
• Median 7.5
• 25th 75th Percentiles 0.5-21.3
• Using this tactic (among fundraisers) 4

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Web

• Number of complete responses 24
• Number stating they do not use 1118
• Incomplete data 201
• Skipped line, matrix or unsure 197
• Mean 8.8
• Median 7.0
• 25th 75th Percentiles 1.8 10.0
• using this tactic (among fundraisers) 16

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Congregations

• Number of complete responses 64
• Number stating they do not use 1127
• Incomplete data 153
• Skipped line, matrix or unsure 196
• Mean 50.3
• Median 18.0
• 25th 75th Percentiles 6.1 60.3
• Using this tactic (among fundraisers) 16

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Door to Door

• Number of complete responses 11
• Number stating they do not use 1294
• Incomplete data 35
• Skipped line, matrix or unsure 200
• Mean 42.1
• Median 10.0
• 25th 75th Percentiles 5.0 77.0
• Using this tactic (among fundraisers) 3

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Foundation Proposal Writing

• Number of complete responses 324
• Number stating they do not use 518
• Incomplete data 618
• Skipped line, matrix or unsure 80
• Mean 6.90
• Median 20
• 25th 75th Percentiles 7.7 60.0
• Using this tactic (among fundraisers) 69

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Foundation Proposal Writing
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Government Proposals

• Number of complete responses 285
• Number stating they do not use 681
• Incomplete data 486
• Skipped line, matrix or unsure 88
• Mean 869.8
• Median 27.5
• 25th 75th Percentiles 9.5 102
• Using this tactic (among fundraisers) 56

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Government Proposals
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Major Gifts

• Number of complete responses 124
• Number stating they do not use 930
• Incomplete data 288
• Skipped line, matrix or unsure 198
• Mean 172.7
• Median 24.0
• 25th 75th Percentiles 8.4 100.0
• Using this tactic (among fundraisers) 67

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Major Gifts
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Capital Campaigns

• Number of complete responses 79
• Number stating they do not use 1120
• Incomplete data 140
• Skipped line, matrix or unsure 201
• Mean 427
• Median 20
• 25th 75th Percentiles range 8.0 53.8
• Using this tactic (among fundraisers) 16

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Planned Giving

• Number of complete responses 80
• Number stating they do not use 1060
• Incomplete data 188
• Skipped line, matrix or unsure 212
• Mean 690.8
• Median 20.0
• 25th 75th Percentiles 7.8 100
• Using this tactic (among fundraisers) 20

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Conclusions

• Fundraising Tactics matter.
• They have different returns on investments.
• Other project research using Form 990 data found
  similar results tactics 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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Survey Results References

• See How Fundraising is Carried Out in U.S.
  Nonprofit Organizations. Mark Hager, Patrick
  Rooney and Tom Pollak. International Journal of
  Nonprofit and Voluntary Sector Marketing, Vol 7,
  No. 4, 2002, pp. 311-324.
• Covers Fundraising Roles of CEO, CDO, Volunteers,
  Consultants, etc.

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Survey Results References (cont.)

• The Nonprofit Quarterly (Spring 2003)
• Management and General Expenses The Other Half
  of Overhead
• Is Grant Proposal Writing a Fundraising Expense
• Giving USA Update (2003)
• Variations in the Cost of Fundraising
• Variations by size, age, mission using 990s.

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More Resources
http//www.coststudy.org