Fundraising Efficiency

Fundraising needs staff, systems, advertising, events and donor care. A simple cost-to-raise measure divides fundraising expense by related contributions for the same period, telling a board how much was spent to bring in a unit of donated income.

The inverse measure divides related contributions by fundraising expense, so a charity should label which version it uses, since a "higher efficiency" figure means something different from a "lower cost-to-raise" figure. CharityWatch expresses one measure as the cost to raise $100 in cash donations, and it distinguishes contributions obtained through fundraising from total revenue, which may include unrelated program income or investments.

Mixing those streams can make a ratio look better without improving fundraising. Match expenses and contributions carefully too: staff time, agency fees, event costs and campaign technology can count where attributable, and omitting costs understates the real investment.

Cash donations, pledges and in-kind gifts may need different treatment, because a promise to give is not money received and a donated good may not fund operations. State the income basis before comparing two campaigns.

Period choice also matters: a new donor campaign may incur costs now but yield contributions across later years, so a one-year ratio may understate its longer-term value, while a long horizon requires defensible retention assumptions. AFP notes that different fundraising methods produce different returns: a renewal appeal may cost less than winning new donors, and a special event may have different costs from major gifts.

Comparing them without purpose and timing can mislead. AFP also warns that a single cost ratio can hide the charity's cause, stage and funding environment, so boards can set reasonable expectations from their own history and goals rather than applying someone else's benchmark blindly.

Use the ratio alongside net contribution, because a campaign that raises a large sum at a high cost may still provide more cash for a mission than a tiny campaign with an excellent ratio. Also assess donor retention and quality, since an apparently cheap campaign that attracts one-off donors can leave the organisation rebuilding its base each year, while a costly relationship programme may be valuable if supporters stay and give again.

A ratio cannot measure programme outcomes either, as spending less on fundraising does not prove that the charity delivers better services. Allocate shared expenses consistently, since a staff member who handles programmes and fundraising may need a documented time allocation, and changing it year to year can create an apparent improvement with no real change in performance.

Separate investment from waste: launching a donor database, testing a new channel or building a recurring-giving programme can temporarily raise costs, so ask what future benefit is expected and when it will be tested. Where the data permit, calculate comparable ratios by campaign, channel or donor segment, because for a nonprofit leader the measure is most useful when assumptions are transparent, comparisons are fair and the board remembers why the funds are being raised.