How much does it cost you to raise a dollar?
- Do you know?
- Should you care?
The answer is a resounding YES.
If you were a business, you would need to understand what your revenue drivers are, and how much they each cost. As a charity, your donors will ask the very same questions of you, except they’re measuring impact, not dollars.
This post will demonstrate (in 400 words or less!), why and how to measure your organization’s revenue pillar Return on Investment (ROI). You’ll be able to calculate it easily, without having your finance team contorted into pretzel shapes.
Leadership, Vision and ROI
The Chavender Leadership Approach includes 3 phases of leadership development from a REVENUE perspective:
Awareness—What are our revenue streams and how can we build on existing strengths?
Engagement—Which opportunities bring in the most revenue from an efficiency and cost analysis basis?
Visionary—We have identified our revenue pillars, and we are tracking year-over-year ROI to demonstrate that we are delivering increasing value to the donors.
And here is where the pretzel contortion begins:
- What metrics to include in the ROI calculation?
- How to include them?
- Why include them?
The single biggest impediment to calculating ROI comes from lack of clarity for roles and responsibilities for staff.
ROI Case Study
I recently conducted a fundraising program review for one of my clients. It’s a typical request that I often get: the CEO wanted to make sure the targets he was putting out were achievable, based on the skills and pipeline development for his advancement team. My goal was to help him plan for growth by calculating ROI, not just gross fundraising dollars earned.
ROI costs (e.g. staff time get messy when everyone does everyone else’s jobs. Using ROI to track and measure staff performance motivates and informs staff workplans and outputs. Translation: it keeps staff focused on their outputs because these are tied back to their performance reviews. Even if you’re a 0.4 on this file, and a 0.6 on that file (e.g. annual fund, or major gifts, or communications) you’ll know how much time you can allocate to each file . . . because it affects your revenue pillar ROI if you allocate differently.
How to calculate overall fundraising ROI
Take your total funds raised, and divide by all fundraising costs
- Staff salaries (add an amount to their base salaries to cover benefits, if applicable. Industry standard is 15%)
- Marketing and Communications for fundraising
- Consultant fees for fundraising
- Database and Infrastructure (fixed costs)
- Training and professional development
The key here is consistency: if you counted benefits in your calculations last year, count them for this year as well.
Revenue Pillar ROIs
Using the same approach (money raised over costs) look at each revenue stream and determine the direct costs associated with it. For example, if you have a sponsorship person who is 50% allocated to sponsorships, you will put 50% of their salary towards sponsorship costs.
*If you are a small shop, this exercise is incredibly important! Getting buy-in from staff on HOW they are going to spend their valuable time is a key to success. It is also the first step in holding them accountable to their time allocation and workplans for the year.
Benefits to the Revenue Pillar ROI approach
In addition to the clarity of mapping organization and staff success year-over-year against previous years, you also get a clear picture of which revenue pillars are most profitable.
A visionary leader is ready to lean in, and build targeted strategies that map to those ROIs for each revenue stream. Being informed means better decisions for today’s balance sheet, and for tomorrow’s balance sheet.
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Check out my other post on Senior Leadership Mentor Groups. Finding the right support for leadership to thrive is what I do. My Fundraising Leadership Mastermind Program is a great example of that: a 360 approach to not-for-profit leadership.