Don’t Measure Fundraising Costs, But Cost-Effectiveness.

By Alan Sharpe, CFREThe only number in fundraising that matters is net revenue.

Net revenue is the money you have left over after you subtract your fundraising expenses from your fundraising income. Net revenue is the only money you can do mission with. The more net revenue you have, the more good you can do in the world.

You would think that board members would encourage their charities to raise as much net revenue as possible. But plenty of them don’t. They instead obsess over fundraising costs, and pressure their fundraising staff to cut fundraising costs wherever possible.

This is foolish and short-sighted. It’s the equivalent of cutting your office energy costs in half by not heating in winter and not air conditioning in summer. And losing all your employees.

It’s the equivalent of travelling to a famine-stricken area of Africa with life-saving supplies, but choosing the cheapest method of travel, row boat, instead of a Boeing 777, arriving three months late, and everyone having died while you were in the middle of the Atlantic Ocean saving money.

People who obsess over fundraising costs instead of net revenue are looking at the wrong end of the horse. You discover the health of a horse by examining its eyes, ears, nose and gums. The other end doesn’t tell you much.

Arbitrarily cutting your fundraising costs is foolish if it reduces your net revenue, wouldn’t you agree?

Increasing your fundraising costs is wise if it increases your net revenue, wouldn’t you agree?

Remember that there are only three ways to increase your net revenue:

1. Reduce your costs
2. Get donors to increase the size or frequency of their gifts
3. Get more donors

To persuade donors to increase the size or frequency of their gifts, you have to increase your fundraising costs (by mailing them more often, for example). To get more donors, you have to increase your costs.

Naturally, if you can reduce your costs without reducing your net revenue, you should. For example, if a fundraising letter printed in black raises just as much money as a letter printed in colour, but costs less to print, you should print in black. But if printing in colour brings in more net revenue, despite it costing more, you should print in colour.

If your board demands that you cut costs, insist that you cut costs for the right reason. And there’s only one right reason. Cut your fundraising costs not because cutting costs is always good (it ain’t). Only cut if doing so boosts your net revenue, because boosting net revenue is always good.

If cutting your fundraising costs boosts your net revenue, cut. If increasing your fundraising costs boosts your net revenue, increase. Keep your eye on the right end of the horse and you’ll raise more money, and do more good with it to change the world.