Keeping all your balls in the air – fundraising effectiveness tips
June 2011
The ‘beginners guide’ to fundraising by Joe Saxton is an invaluable sense-check on fundraising strategy for all voluntary organisations
Some fundraising channels are more ‘efficient’ than others and Joe Saxton’s report, Gimme, Gimme Gimme (March 2011) provides a thorough, refreshing, and accessible analysis. Although aimed at those just starting out on fundraising it has a number of useful reminders even for the most seasoned of fundraisers:
- Fundraising takes time to bear fruit. The greater the amount being raised, the longer the lead time and preparation time – raising money from donations is not a quick task.
- Fundraising takes an investment of energy and money. This is something the public has difficulty in understanding – an organisation used loving on statutory or legacy income might only need to spend 5 per cent of that on raising it, but a typical fundraising operation is lucky to spend less than 25 per cent on its income on fundraising costs, particularly in the early years of growing the income.
- You have to ask for donations. In particular trustees and executives, coached and helped by their fundraisers are often, according to the report, the ‘best people to do it.’
- Fundraising takes skill and hard work. The best fundraisers make a huge difference to their organisation and it takes years of experience. The report advises against hiring fundraisers because of an assumption thye have a ‘contact book of instant donors ready to give to any cause the fundraiser asks them to.’
- There is no such thing as donor fatigue. It is not people who are fed up with giving but charities’ own attitudes to asking. Fundraisers, the report says, should ‘always have the view that people have never been asked in the right way or at the right time with the right request. ‘After all, no supermarket, mobile phone company or bank talks about consume fatigue. They know that they have to innovate, try out new things, build better products and create more powerful and compelling reasons to buy in the minds of their audiences. And fundraising should never be any different.’
Return on investment
Part 4 of the report helpfully goes through some of the main sources of funds and identifies the pros and cons of each one. In particular, it assigns an estimated return on investment for each one, assessing how much a charity might get back for every £1 it spends, including staff time. The evidence is ‘based on a mixture of nfpSynergy data, industry wisdom, and best estimates and, according to Saxton should be treated as ‘a guide, not a tablet of stone’.
- Charitable or grantmaking trusts. While these are sources of substantial chunks of money from organisations whose job is to give away money, the funding is rarely unrestricted and the reporting requirements are onerous. However, grant applications can be squeezed into a number of roles and an ROI of 10:1 is possible, depending on the cause.
- Local/community fundraising. This is an unrestricted income source from many different volunteer-driven activities. But it typically takes a year to get started and three years to reach its peak. The ROI would be around 2:1.
- Event fundraising. This has the potential to yield an income which grows year after year as participants return to events they are loyal to (such as the London Marathon or the Swimathon). However, good events take a year or two to break even. The report estimates an ROI of 5:1 being possible for the best events but 3:1 as a more realistic target.
- Cash/cheque/credit card appeals. Charities with established databases do well from direct mail as this channel yields a stream of unrestricted income. But the costs of building a database are high and the report suggests a rule of thumb where the donor might take two years to pay back the cost of recruiting them. The NfPSynergy 2010 study has an ROI for donor recruitment including staff salaries of 0.83:1 and for existing donors of 5.9:1 (which includes committed giving income).
- Committed giving (standing orders and direct debits). One the donor is recruited, conversion from a one-off gift in response to an appeal to regular committed giving is the next step. This also delivers streams of low-cost income from which Gift Aid can be easily reclaimed. However, the hard bit is recruiting the donor in the first place which is why there are so many ‘from as little as £2 a month you can…’ campaigns. The ROI is high – from 5:1 to 10:1 but the hard work lies in building up the committed giving database.
- Legacies. By its very nature this brings in large chunks of unrestricted income – the report points out that just five people leaving 10 per cent of a £500,000 estate each year would transform the fortunes of most small charities. But legacies are unpredictable and can take years from promotion to actual results. The NfpSynergy 2005 study showed an ROI of 40:1 and the 2010 one an ROI of 22:1 including staff and salaries.
- Trading and mission-based enterprise. By definition, this is vulnerable to the vagaries of the economic cycle and the report observes that the profit margin is often low (20 per cent) and the set up and running costs of a trading operation (such as a charity shop) can be high. However trading is not the same as giving, and it is easier to demonstrate a business case and borrow money just as any small business would. Returns would depend on how much of the enterprise was dedicated to service delivery and how much to generating income. The report says “Our 2005 tudy showed an ROI of 2:1, suggestiong our 6:5 in the current climate may be a little gloomy”.
- Corporate support. Saxton sees this as possibly the “single most over-rated source of charitable donations”, mainly because very few charities actually receive more than 10 per cent or their income from charities. Corporates are also quite picky about what charities they will give to and the ‘big brand’ ones are usually preferred. It takes at least 18 months to work to being selected as ‘charity of the year’ and the likely ROI is estimated at around 5:1. It is also pretty time-consuming to maintain the relationships with the corporate donors and this impacts on staff costs.
- Major donors. Rather like corporates, wealthy individuals need time spent on relationship management and usually want specific projects or areas where their money can be channeled into. It can take up to two to three years to move from a portfolio of first prospects to an actual donation. The report points out: “A typical capital appeal might start five years or more before it wants the money” and estimates ROI at around 6:1 with a reminder that this channel demands commitment of the CEOs’ time.
- Street and door to door fundraising. The report admits it doesn’t have enough meaningful data on this channel, noting that advantages are payment by results with donors recruited onto high value direct debits. Cons are the costs and high attrition rates of recruited donors. ROI is sitting at 1:1 but should improve as more direct debits come in. Further information and statistics are available from the Public Fundraising Regulatory Association.
- Digital and new media . While the set up costs are low, it has not raised much cash so far, unless charities are organising specific fundraising events or calling for responses to disasters and emergencies. Average ROI is around 2.3:1 but this would be higher for charities doing a lot of overseas development and fundraisign event work.
- Statutory income. Saxton calls this "delicious stuff and up till recently the financial lifeblood of many organisations." But it is no longer available in relatively large amounts and while ROI was at 28:1 in the 2005 nfpSynergy study, the reporting to funders was viewed as onerous. Now statutory income is "like gold dust."
A resilient fundraising portfolio
He then recommends in Part 5 that the ROIs are used as a basis to plot a resilient fundraising portfolio so that all the different income streams can work together for the maximum benefit of the organisation. The difficulties faced by charities dependent on statutory funding are a reminder that any dependency on too small a set of funders or donors is to be avoided. The charts on pages 19 and 20 of the document plotting timescales to raise money versus their income potential and the risk versus the return matrix for different fundraising techniques should form the basis of every fundraising strategy. In other words all 12 channels listed above should be plotted on an axis and positioned according to how long they are like to come to fruition and what the estimated ROI of each one is.
As Saxton himself concludes “there are bits of this document that could certainly be described as depressing…fundraising is a marathon and not a sprint. However it is a marathon well worth the effort when done effectively.”
The full report, Gimme, Gimme, Gimme! A guide for organisations new to fundraising or just starting out raising money by Joe Saxton of nfpSynergy can be viewed here.
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