[ASK AN EXPERT] How to Measure Donor Acquisition Costs

Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.

Today’s question comes from a fundraiser who wants to know how their donor acquisition costs stack up against other orgs.

Dear Charity Clairity,

What is the best way to show our leadership and finance department how our donor acquisition costs (DAC) compare against other non-profits? We can easily compare our own internal Cost To Raise a Dollar and DAC. But when making decisions on what new marketing efforts and platforms to pursue, knowing the averages and fundraising effectiveness across the industry would be quite helpful.

— Need Proof

Dear Need Proof,

You’ve asked a great question. One it’s almost impossible to answer.

I will endeavor to try.

The Fundraising Challenge

The challenge is there are no real standards across the industry about what constitutes a “fundraising expense.” So while I will point you towards some averages, it’s not easy to know you’re always comparing apples to apples.

Here are some of the things that can go into ‘cost of fundraising’ for your mailings, events, communications and compensation of staff engaged in these activities:

• Printing
• Paper
• Mail house
• Email service provider
• Postage
• Copywriting
• Advertising
• Website
• Digital communications
• Staff project leader
• Staff direct support
• Staff ancillary support (e.g., percentage of E.D.’s time devoted to major donor acquisition)
• Infrastructure (e.g., database, fundraising and customer relations management software)
• Administrative overhead (e.g., percentage of occupancy, utilities, insurance, etc.)

For your internal purposes, you’ll want to determine whether you’ll count just direct expenses or also indirect expenses. The former are things you pay for you’d otherwise not do, like printing and production. The latter are things like development, marketing and/or finance staff and/or administrative overhead allocated to this function. Whatever your policy, be consistent in using the same policy year-over-year.

James Greenfield wrote the definitive book on this subject in 1999, and I’ve always used it as my bible for calculating cost per dollar raised. The Association for Fundraising Professionals calculations, while slightly different, are in basic agreement. If you’re concentrating on special events fundraising it costs you 50 cents on the dollar (more when you take into account staff salaries and time), and you actually lose money on direct mail donor acquisition.

To complicate matters more, the size and age of your nonprofit will affect what is a reasonable cost. Smaller, younger organizations will find their costs to be higher as they rev up systems and infrastructure.  It’s more expensive to be in start-up mode – which is the case whenever you build out a new strategy. Do you amortize the cost of the new monthly giving or peer-to-peer software, or do you count it all as an expense in the year of purchase? There’s no one right way to do this – so everyone does it differently. This makes comparisons tricky.

You also don’t want to make the mistake of looking at costs in a vacuum. For donor acquisition, it is expected you will lose money on the first gift. But acquisition is only the beginning, not a one-shot strategy. You need a longer-term plan in place that includes resources and strategies for donor retention. So if you’re talking to your finance department, they must understand and appreciate this.

You’re looking to acquire folks who, over their lifetime of giving to you, will merit your investment. So while the cost of direct mail acquisition may range from $1.00 to $1.25 per dollar raised, once new donors have been identified a second mailing to that group may cost only $0.20 per dollar raised. Ultimately some of these donors may even become major or legacy donors.

I hope that’s enough proof to help you make your case!

— Charity Clairity

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