[ASK AN EXPERT] What’s a Good Ratio of Fundraising Budget to Revenue Goal?

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 of any ratio of fundraising budget expenses to revenue goal.

Dear Charity Clairity,

As we approach planning for 2021 and beyond, I’m curious to know (outside of events) if you have a sense of any ratio of fundraising budget expenses versus revenue raised needed to accomplish annual budgeted fundraising goals? That is, a very minimum expense line for fundraising that only covers thank you note cards and postage might only be less than 1% of a goal to raise $250,000 locally. Is there a minimum standard we should be aiming for, and what might that include from your perspective?

— A Bit at Sea

Dear A Bit at Sea,

The thing about being at sea is your ability to navigate the waters successfully depends on many variables. For example, how seasoned a sailor you are, how long you’ve been in the water, whether you tend to travel in the deeps or the shallows, the type of weather you encounter, the nature of your vessels, the resources you have on your ship, and the other sailors you have on board to help.

The same can be said of fundraising.

Alas, there is no one standard ratio of expenses to revenues. It depends on your variables.

• Start-ups and younger charities must generally spend more. 
• Older and well-recognized nonprofit brands will be able to spend a lower percentage.
• Smaller nonprofits will tend to spend a larger percentage as there are economies of scale that can be achieved by larger organizations.

There are some standards, however, for different types of fundraising strategies. Conventional wisdom per fundraising cost/benefit wizard James Greenfield, and similarly from the Association of Fundraising Professionals, shows donor acquisition and event fundraising to be the most expensive while legacy and major gift fundraising are the least expensive. I would say even these measurements – averaging to around 20 cents to raise a dollar — are understated as they often don’t include the ongoing costs of cultivation and stewardship. There is no single accepted standard for measuring fundraising costs, so an apples-to-apples comparison is virtually impossible to find. 

Beyond direct fundraising strategies, your budgeting should incorporate what are sometimes considered marketing, relationship-building or otherwise ancillary programs – yet which are absolutely essential. You can’t have a true fundraising program without these things. That means budgeting not just for the cost to acquire donors but also to renew and upgrade them.

Also remember your costs must include the direct staff support required to conduct the given strategy. So, for example, the donor acknowledgement strategy you posited does not include simply note cards and postage. It also includes the time spent by staff (as a percentage of their salary) and/or contractors to write, design, print, proofread and mail the cards. Even if your support is done by volunteers, there is a cost associated with recruiting and managing them. See here for more information about the types of fundraising expenses you’ll want to consider including in your budget.

One other thing important to mention is the ‘overhead myth.’ For too long, nonprofits have been rewarded for how little they spend rather than how much they accomplish. Just as measuring overhead does not neatly correlate with a nonprofit’s impact or effectiveness, so does establishing fundraising budget minimums and maximums not correlate with fundraising success. What’s right for a given charity will depend on many variables, including size, scope, maturity, popularity of the cause, and more. Take a look at the 990s of other organizations like yours and see what their fundraising expenses are compared with their revenues. Now ask, how are you similar or different to them? This gives you a starting – though not an ending – point.

Figure out what you need to get the job done effectively. And I mean the full job – from developing awareness… to building interest… to causing engagement… to generating investment… and to then beginning the cycle once again to maximize the lifetime value of your supporters and build a sustainable fundraising operation. That’s the minimum for which you should shoot.

To your fundraising success!

— Charity Clairity

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