| How do I know how much money to spend on fundraising? | Look at what it cost in the past to attract and keep a donor. Voilà! That's how much you should plan to spend to acquire and retain supporters in the future. |
Plautus the Roman comedy writer was right: you need to spend money to make money. The trouble is, it’s not always clear how much money you need to spend. Predicting your fundraising costs (i.e., making a fundraising budget) can feel harder than you want it to be. Let’s fix that.
Small nonprofit organizations don’t always need detailed fundraising budgets. They can copy what they did last year or just deal with minor expenses when they arise.
When your nonprofit grows, your needs change. Staff and community members depend on you being there and being consistent. So, you start to plan fundraising and invest more money; this is how you remain a reliable presence in your community.
It is a big leap from “We’ll just spend whatever we raise” to “We’ll raise what we need to spend.” It’s exciting, but also scary.
Armed with your past budgets and a calculator, figuring out how to start fundraising is simple.
Two metrics can help you decide how much money to spend on fundraising.
First is the Supporter Acquisition Cost. How much money do you need to spend to gain one new supporter? That’s your SAC. (Charities might also call this “Donor Acquisition Cost” and businesses might say “Customer Acquisition Cost”.)
Second is the Supporter Retention Cost. How much money do you need to spend to keep an existing supporter, donor, or customer? That’s your SRC.
If you don’t know these two numbers, deciding how to start fundraising will be tricky. That’s a risky way to grow because if you spend too little, you lose supporters. Spend too much, and you won’t have money for your programs.
The cost to attract a new supporter is the amount of money you have to spend to get one new donor, sponsor, funder, etc. For example:
Acquisition costs usually include expenses like advertising, print and design, website development, events, and staff time. Staff costs might come from networking, writing, and event planning. Be sure to include that time in your calculation!
You can use your SAC to figure out how much money to invest in your organization’s growth each year.
The cost to retain a supporter is the amount of money you have to spend to maintain a funding relationship with a donor, sponsor, funder, etc. For example:
Retention costs including things like e-mail newsletter design and delivery, website development, event hosting, financial reporting, and impact reporting.
These costs often overlap with other communications and program expenses and might not always feel like “fundraising” but it’s good to include them all in your SRC calculation. This gives you an accurate sense of how much money you need to spend to maintain relationships.
Supporter Retention Costs should be baked into your organization’s annual budget. Like staff time or internet access, this is a cost of doing business that you can’t avoid.
Budgeting for retention is also a sign of respect to the people who have supported the organization and its mission. When you nurture relationships with existing supporters, you remember not to take them for granted. You make sure they are included in the organization’s community. If you leave your community out of your annual budget, you leave them out period.
When you calculate the cost of acquiring new supporters (the SAC), you can’t help but study your fundraising and marketing programs. You have to figure out where your supporters are coming from in order to figure out how much it costs to attract them. That gives you great insight into which tactics work best. If your supporters are coming from events, build out your events. If they are coming from social media, invest in social media.
Even if you aren’t trying to grow, you need to find some new supporters. People move away or get busy, and even the best organizations lose some supporters every year.
Your SAC tells you what is working. Do more of that, and build on your own successes.
Armed with your SRC and your SAC, you have a compelling pitch to a funder or investor. When you can show them that a grant or loan of, say, $50,000, will gain you 100 new funders and $100,000 in revenue, you make a great case for financial support. Those 100 new supporters can help you continue your work in the future, long after the initial grant or loan has been spent. That’s very appealing to a funder who wants to understand exactly why their money is needed and how it will make a difference.
Fundraising gets easier once you have more of your own money to invest. You can use those one-time infusions of cash to help you turn small fundraising campaigns into big ones. Don’t be afraid to ask funders to help.
Sustainable organizations usually attract money in a few different ways. Every approach has strengths and weaknesses, so it makes sense to have a mix of tactics in your fundraising strategy. Knowing the ROI of each tactic and campaign tells you how to raise the most money for the smallest investment.
When you look at Return on Investment, you look at how much revenue you generate for each dollar you spend. That return on investment metric (“ROI”) can be compared across different fundraising tactics so you spend your money wisely. For example, if you raise $2 for every $1 spent on a gala but you raise $5 with a social media ad campaign, then you know the ad campaign is the best option.
Knowing your ROI prevents your organization from getting stuck in a rut. You won’t be tempted to do the same old things, just because they are familiar. You’ll be able to drop activities that aren’t performing well and add new ones, keeping your fundraising strategy fresh over many years.
Knowing the ROI of different fundraising tactics is so helpful that a lot of people will tell you it’s the most important metric. That might not be true.
In real life, ROI is not always the most practical number. When you are just starting out or have a tiny staff, you can’t always choose your fundraising tactics based on the math. You don’t have the luxury of running just any kind of fundraising campaign, because you are reliant on your existing skills, assets, and network. You have to start where you are.
Focus on your supporters first — the humans — so that you get real information about who funds your work and why (or why not). Then use that information to build and to grow your organization.
The two magic metrics sound like math but they offer emotional benefits. The clarity that comes with understanding the relationship between expenses and revenue is empowering.
It can be hard to know if you can afford to spend money when you start fundraising, or to know how much you should spend.
When you map out a strategy and start a fundraising budget using the two magic metrics, you have clarity. You know what to do. You’ll know early on if it isn’t working, and you can change or pivot when you need to.
If the metrics stuff makes your head spin, don’t worry. The most important thing this — your fundraising budget should never be a mystery. You know what you are doing to raise money, and you can predict what you’ll need to spend to do it.
Brand new organizations are still experimenting and learning; that’s fine. Your goal is to get to a point where you can start to reasonably predict how much money you can fundraise with a certain amount of effort and investment. Collect data and the mystery will melt away in no time.
You shouldn’t have to start from scratch every year. Let the metrics make your fundraising work a little easier.
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