As a nonprofit professional, you probably understand there is significant pressure to limit overhead expenses such as fundraising and administrative costs. While many nonprofit supporters and charity evaluators, such as Charity Intelligence, now look at other factors besides costs, many nonprofits still feel it is necessary to report what they spend on overhead. Apart from offering transparency and accountability, tracking different fundraising and performance metrics can help your nonprofit run more efficiently. One of the most helpful metrics to track is the cost per dollar raised.
Why Cost Per Dollar Raised Matters
Cost per dollar raised is a key performance indicator that your nonprofit or charity can use to determine whether or not you’re responsibly balancing the sometimes high costs of fundraising. Many nonprofits calculate the cost per dollar raised for each fundraising campaign and resource development activity that occurs, including grant writing, online fundraisers, and major donor campaigns. Once you track these figures for a number of campaigns, you can figure out which fundraising activities are the most cost-effective and which ones need revamping.
To calculate the cost per dollar raised, divide the fundraiser’s expenses by its revenue. For example, if you spend $5,000 in fundraising expenses, which include everything from marketing costs to staffing expenses, and you raise $15,000, your cost per dollar raised is 5,000/15,000 =.33, or 33 cents per dollar raised.
Is There a Cost per Dollar Raised Benchmark?
Certain cost per dollar raised benchmarks can help nonprofits determine if their numbers are within a normal range. In general, nonprofit leaders suggest nonprofits aim for a 20 cent per dollar raised ratio. Because fundraising techniques differ so greatly, it is best to measure your own results over time and compare your numbers regularly.
Expand on Your Data
Ideally, you want a low cost per dollar raised number. This indicates you’re using less means to produce more income. That said, each fundraising technique has a unique return on investment, and you may find that although the cost per dollar raised is high for certain fundraising activities, you receive higher rates of repeat donations from the donors acquired. This is why you should consider tracking additional metrics to determine your overall fundraising effectiveness:
- Donor retention rate.
- Average annual gift.
- New donor retention rate (First time donors making a second gift/First time donors).
- Returning donor retention rate (Donors making three or more gifts/Donors making two or more gifts).
- Donor lifetime value (Average annual gift/Donor attrition rate).
Plan Your Next Steps
You’ll want to continue tracking and analyzing your data to determine which fundraising activities are cost-effective and also help you retain donors for years to come. To help lower your cost per dollar raised rate, focus on the following areas:
- High-return fundraising techniques that utilize social fundraising.
- Lowering online processing fees by having donors cover them.
- Avoiding low-return fundraising methods, such as new donor acquisition through direct mail and email marketing blasts.
If your nonprofit can easily calculate the cost per dollar raised as well as other important metrics, it means you’re keeping good records and are committed to streamlining fundraising techniques to maximize donor dollars and budget effectiveness.