Nonprofit Ratios: Fundraising Efficiency

     Nonprofit organizations are very different than private for-profit corporations, and so are their financial ratios. So today, I bring you a very important ratio called the fundraising efficiency ratio. This is a ratio you're going to want to know and fully understand, because it’s the best way to truly measure the financial success of your fundraising efforts. 

What is your fundraising efficiency ratio?

     The fundraising efficiency ratio is a measure of how effective your nonprofit's fundraising activities are. To calculate yours, take the total funds raised from an activity and divide by the total fundraising expenses for that activity. If you do multiple fundraising efforts, you'll want to calculate the ratio for each separate activity individually. Let's look at an example:

    $100,000 Golf Tournament Proceeds (sponsors, team registrations, raffles, auction, etc)

÷   $40,000 Expenses (facility rental, auction items, prizes, promotional items, marketing, staff costs) 

                 2.5

     In this example, a fundraising efficiency ratio of 2.5, means that for every dollar you spent on a fundraising cost, the organization gained $2.50 in fundraising revenue. Likewise, a ratio of 1 would indicate that you’re just breaking even, or only generating one dollar for each dollar spent. Therefore, this ratio should always be not only   positive, but also always greater than 1.0. 

     Note that in the above example, we included “staff costs” as a fundraising expense. Don’t forget to quantify the cost of man-hours spent by your staff on your event! For example, if your staff spends a week working on the event, you would calculate their cost as follows below for each employee:

1/52 x annual salary = cost per employee for one week’s pay

Fundraising Efficiency Ratio Guidelines and Considerations     

     Here's a generalization that won’t necessarily apply to everyone, but serves as a good rule of thumb: The industry benchmark is a ratio of 5. In other words, for every $1 that you spend, you raise $5. (or for every dollar you raise, you spend $0.20) This is a very generalized nonprofit industry standard. 

     Of course, every situation is different, and there are several factors that could impact the efficiency of your specific fundraising activities. A startup event in its first year will typically be less efficient than an established event with wider recognition. In this case, you’ll typically see higher event costs and lower interest or participation than what there may be potential for in subsequent events. So don’t be alarmed if your first year event has a ratio around 2.5.

     On the other hand, you do want to compare this ratio from year to year over the lifespan of an event because when an event has run it’s course and lost momentum, you’ll see a trend back toward very low ratios. Similar to a bell curve, lower ratios on either side can indicate the beginning and end of an event’s natural lifespan. You may start off in your first year barely breaking even. A few years later, that same event may do really well- even generating more than $5 for every dollar spent. But be sure you continue to track this ratio to watch for a downward slope, indicating a need to reinvent or replace that event. 

     Also, keep in mind that industry norms can vary greatly even from one nonprofit sector to another for many reasons. So, it’s important to research the fundraising efficiency of other nonprofits in your own sector through industry associations that may represent your peers in order to find even more specific benchmarks. This allows you to see how your fundraising efforts stack up against peer organizations and in what ways you may need to develop and refine your fundraising efforts. 

     Taking the time to track this important metric will help you find improvement opportunities within your fundraising strategies. Once again, I want to remind you to always factor in your staff cost for a more accurate picture of what it truly costs to bring in each fundraising dollar. If this has been helpful to you, I invite you to check out my website, where you can sign up here for my weekly tips delivered to your inbox. I’ve got a few more ratios to share with you in the coming weeks and I don’t want you to miss one! 

     If this week’s ratio seems complicated or you’re just feeling overwhelmed and you'd like to spend some time talking through your situation with me, you can also book a strategic consult here if that's something you're interested in. I'd love to take some time to talk through your specific situation and brainstorm options and ideas with you!