Like an annual physical, regular financial benchmarking helps not-for-profit organizations assess the health of their operations. Most carry out a series of formal and informal assessments every year, comparing investment returns to market indicators and like-endowments, checking their organization’s spending policies relative to similar groups and benchmarking executive compensation.
The cross-checking allows organizations to objectively see how they’re faring in the marketplace, if fees are too high or if returns are not reflective of what other organizations experience. This can help indicate what adjustments need to be made to your strategies before they become larger financial issues.
Fundraising, however, rarely gets the same due diligence. The majority of not-for-profits look at fundraising efficiency on an undefined basis, such as a review of management and oversight costs.
In taking this approach to fundraising, many not-for-profit organizations are missing opportunities to understand the differences between their organization and its peers, which could help improve future performance.
Knowing your organization’s operating efficiency (total costs compared to total revenue) is good financial practice. The same metric should also be applied to your fundraising. You should compare your fundraising expenses to your returns to determine, literally, how your efforts are paying off.
A good fundraising efficiency ratio is 20 percent. Anything higher, and you should be taking a hard look at the expenses you’re putting into efforts to determine if there’s a more cost-effective approach that could be used.
By their nature, some sources of fundraising require more spending than others, so you should also consider breaking down fundraising into subcategories. Evaluate how your efforts compare to these other fundraising efficiency benchmarks:
- Capital campaigns: 5-10 percent
- Grants: 20 percent
- Direct mail renewal: 20 percent
- Direct mail acquisition: 100 percent
- Planned giving: 25 percent
- Events: 50 percent
If your total fundraising efficiency is above 20 percent, consider putting more resources toward more cost-efficient types of fundraising.
Monitor the Long-Term
To get the most out of your benchmarking efforts, be sure to compile your findings year-over-year and present your year-over-year results in one, easy-to-read dashboard. The year-over-year analysis for fundraising efficiency, for example, could pinpoint minor trends that could be affecting your funding source that may not be obvious in your current year’s fundraising efficiency result. Compare your findings to others’ year-over-year efficiencies.
If you invest any of the funds that you receive from donors, you should also track long-term trends in investment returns. Annual focus alone will not reflect enough data. Dips or surges in the markets could disproportionally affect funds one year and relying on that data alone will not adequately prepare your organization for what lies ahead.
Take Advantage of Third Party Sites
Industry watchdog organizations like GuideStar and Charity Navigator aggregate fundraising data and costs, but many organizations use these resources to snoop on their competitors rather than as a guide for improving their own policies.
Organizations like GuideStar and Charity Navigator give scores to not-for-profit organizations that have low overhead costs and high returns on contributions, but the ratings alone do not tell the full story. The inputs to those ratings could be manipulated to produce higher scores, so understanding how each site’s rating is calculated is crucial. There may be adjustments that could be made to working capital and liquidity structure on the balance sheet that enhances its presentation and therefore improves accountability and transparency metrics. How organizations address cost and functional expense reporting can also vary, so your organization should evaluate whether it’s doing everything in its power to put its best face forward for third party reporting.
Keep metrics of your performance on third party sites compared to your competitors. It’s not enough to peek in from time to time on how like-organizations fare on watchdog sites. Data should be compiled that compare how your cost allocation to administration and fundraising measure up to your peers on an annual basis. Your potential donors may be looking at the same type of data when it comes time to make their contributions.
Fold It into Your Strategic Plan
The level of detail required for annual reporting can be hard to translate into a concrete financial strategy. One of the most important uses of financial benchmarking is to draw out key points to illustrate trends. Dashboards could help your leadership and Board of Directors with long-term planning and identify sources of expense or loss of contributions that could be of concern. The metric could pave the way for changes made in how your organization approaches fundraising and reporting.
Benchmarking data also serves the unique function of being able to demonstrate your organization’s performance based on how other organizations are faring in the marketplace. Be sure that your fundraising planning sessions include data from your benchmarking to ensure you’re making decisions based on notable trends the sector appears to be experiencing.
For More Information
If you would like more guidance with how to use common benchmarking tools to enhance your fundraising, please contact us.
Tom Griffin is a Manager in the Not-For-Profit & Education Practice. He can be reached at 401.626.3275 or TGriffin@cbiztofias.com.
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