There are six key nonprofit fundraising ROI benchmarks that every group should be tracking. After all, if you don’t know your fundraising costs per dollar raised, then your nonprofit will quickly become a no-profit.
Of course, the fundraising ROI formula has more to it than just measuring costs. For example, it’s acceptable to spend more money on a mailing to acquire new donors than it brings in return in donations. Why? Because in nonprofit ROI, you have to also look at the lifetime value of those new donors.
So, is there one super fundraising ROI formula? Of course not because there are multiple variables that you have to take into account. Even the Institute of Fundraising ROI page says that “The Institute does not believe it is possible to be specific about return on investment because there are so many factors that will vary year on year and organisation to organisation.”
What affects ROI? Fundraising consultant Alan Sharpe shares his experience with the six most important fundraising ROI benchmarks in this guest article below.
Know Your Six Fundraising Numbers or Die
If you appeared on the reality TV show Dragon’s Den (or Shark Tank), pitching your charity to investors, would they give you any money?
Watch a few episodes of either show and you’ll quickly discover the most common mistake wannabe entrepreneurs: They don’t know their numbers.
They don’t know their costs. Or their break-even point. Or the size of their market. They don’t know the numbers that will persuade investors to fund their business venture. So they walk away without a penny.
In fundraising, you live or die by your numbers. You can’t hope to get your budget approved (or hold onto your job) unless you can demonstrate that you know your business. And your business is numbers.
Here are the six fundraising numbers you need to know cold:
1. Net Annual Growth in Active Donors
Every year you add donors through acquisition and lose donors through attrition. The difference between these two numbers is your net growth. It’s either positive or negative (or unchanged–unlikely).
Don’t measure just the number of new donors you add annually. That number might look impressive, but it’s false. 80,232 donors acquired minus 81,439 donors lost isn’t growth.
2. Net Cost Per Donor Acquired
Figure out how much you need to spend to acquire a new donor for every channel you use (direct mail, face-to-face, online, direct response TV, special events, and so on). You need to know this number to win board approval for a donor acquisition budget.
Donor acquisition costs money. The other number you need to know is Lifetime Donor Value by Channel (below).
3. Attrition Rate by Channel
Donors die, lose their jobs, move, retire, divorce and do other disagreeable things that make them stop supporting your cause. Although many of these things are beyond your control, you still need to know the number of donors you lose each year, expressed as a percentage of your active donors, and calculated for every channel you use to raise funds.
When you know your attrition rate, you know how many new donors you must acquire each year just to stop your file from shrinking. Because it is shrinking.
4. Renewal Rate by Channel
What percentage of your donors who give a gift one year also give a gift the next year? That’s your renewal rate. Your renewal rate indicates how passionate your supporters are about your cause. It also indicates how successful your donor stewardship program is.
5. Second Gift Conversion Rate
Most people who make one gift to a charity never make another. If you have a low Second Gift Conversion Rate, you either are attracting donors who are unlikely to make a second gift, you are not treating your first-time donors properly, or you are not asking for that vital second gift soon enough (or all three).
6. Lifetime Donor Value by Channel
How much does one of your average donors contribute to your charity in her lifetime? That’s the number you need to know to justify your investment in donor acquisition and stewardship. Include in this number every gift ever given, including annual gifts, major gifts, special event gifts and bequests. Know this number for every channel you acquire donors by.
By the way, if you master these six numbers, and adjust your fundraising program accordingly, you’ll have the knowledge and expertise you need to negotiate another vital fundraising number: your salary.
About The Author
Alan Sharpe, CFRE, is a fundraising practitioner, author, trainer and speaker. Through his weekly newsletter, books, handbooks and workshops, Alan helps not-for-profit organizations worldwide to acquire more donors, raise more funds and build stronger relationships. Sign up for “Sharpe Tips,” Alan’s free, weekly, email newsletter, at www.raisersharpe.com.
More Nonprofit Fundraising Advice
Donor Acquisition Strategies – When it comes to acquiring donors through direct mail, there are certain strategies that always work well for most non-profit organizations. The key donor acquisition strategy is, of course, to mail at least one donor acquisition mailing each year. And yet, some groups fail to employ even that basic time-tested strategy.
Donor Retention Best Practices – The vast majority of non-profit organizations do not follow donor retention best practices. The Center on Nonprofits and Philanthropy reported in 2013 on the dismal donor retention statistics evidenced in a study of 1.8 million donors. The donor retention rate for first-time donors (i.e. getting a second gift) was an abysmal 27%.