Research Findings on the Cost of Fundraising by hdh47907

VIEWS: 16 PAGES: 51

									Research Findings on the Cost of
Fundraising

Thomas H. Pollak
Center on Nonprofits and Philanthropy,
The Urban Institute

2004 MIP User Conference
**********
October 2004
Austin, TX
The Project
Nonprofit Fundraising & Administrative Costs:
Assessing Current Practices & Developing a Framework for Reporting


• Understand scope & sources of variation in
  fundraising & administrative costs, & identify
  problems or inconsistencies in their measurement
  and reporting
• Develop & disseminate accessible reports, tools, &
  guidelines to public, practitioners & policy-makers
• Initiate a fact-based dialogue on how to ensure
  comparable & uniform reporting of these costs
Multiple Research Phases


• Analysis of IRS Form 990 data, n=228,000
• Survey of fundraising and accounting
  practices, n=1500
• Detailed case studies, n=9
Research for Decision-Making

 • Do you have the right staffing and resources for
   the job?
 • Are we missing opportunities to improve our
   fundraising?
 • Is there something that the more successful
   organizations do that we don’t?
 • Help nonprofits and their funders understand
   what it really costs (including staff time) to
   raise money using different fundraising methods
 • Other long-term benefits from comparable high-
   quality data on fundraising costs
Findings from 990 Analysis

• 37% of organizations with more than $50,000 in
  private contributions reported zero fundraising
  and special event costs
• Of those reporting costs, more than ¼ received
  more than $15 for each dollar spent on
  fundraising
• The median was $5.40
• Another quarter of organizations received less
  than $2 for each dollar spent
Perils and Limitations of the
Research
• What are we really measuring? Are
  organizations reporting consistently?
• Broad analyses is no substitute for local
  knowledge
• The cost of changing methods: Don’t tinker
  with what works
    Case Study Design

•   Goal: ten case studies
•   Diverse org. types, sizes and locations
•   3 reporting zero fundraising costs
•   ―Best practice‖ sites
•   Draw from survey respondents
•   Review 990s, surveys, and audits
•   Onsite interviews with CEO, CFO, CDO
Interview Protocol, CFO (2 hr)
• Sources and uses of funds
   – Restrictions, fundraising methods, admin coverage
• Functional expense tracking
   – Joint costs, time tracking, allocation method and
      rationale
• Infrastructure costs
   – Who pays, adequacy, perceived pressure to keep low
• External reporting: audit and 990
• Internal financial management
   – Budgeting, internal reports, distribution, ―appetite‖
• Finance department
   – staffing, technology, outside supports
Interview Protocol, CEO (1 hr)

• Financial management
  – Who’s involved, what they see, how often, how it’s
    used, finance dept.
• Fundraising and Development
  – Information available for management, development
    dept.
• Covering admin infrastructure
  – Difficulty, adequacy, gaps, reporting pressures
Interview Protocol, CDO (1 hr)

• Sources of funding
• Methods of fundraising used
• Management and coordination of methods,
  people involved in F/R
• Department staffing, technology, outside
  supports
• Planning and information to manage F/R
  – Costs and revenues
• Raising money for admin infrastructure
• Perceived pressure to keep admin costs down
$1M Domestic Abuse Agency

• 2/3 revenue contributed, 1/3 govt. contracts,
  no development staff, CEO very involved in F/R
• A few corporate board members deliver
  significant special event sponsorships and
  program grants
• UW, newsletter, corp and foundation grants,
  thrift shop
• No personnel costs for F/R on audit or 990
Domestic Abuse Agency, cont’d

• ―I’m not an accountant, but I play one at
  work.‖
• Functional expense reporting ―a work in
  progress;‖ no time tracking by functional
  expense area
• ―On M&G, our auditor says there’s no
  definition. You can do whatever you
  want.‖
• 990 prepared by auditor
$5M Community Development Corp


• 70% program service revenue, 30% contributed
• 2 FTE development department
• Foundation grants, corp support for spec
  events, annual appeal, newsletter, UW
• Senior execs deeply involved in fundraising, but
  no salary allocated to F/R
$5M CDC, cont’d

• CFO plus 3.5 FTE accounting department
• Staff assigned to cost centers, cost
  centers assigned to functional expense
  categories
  – No time tracking by category
  – Anything not at the parent is ―program‖
• Auditor prepares 990
• Lack of infrastructure funding handled by
  paying low salaries and doing without
 Literacy Agency of Arguable Size

• 50% revenue from govt., 45% contributed
• 1 development person plus vol. coord. CEO
  very involved in F/R
• Foundation grants, UW, spec. events, mail
  appeals and newsletter, local corps.
• Development person charges time to program
  to keep F/R ratio down
• Grant budgets avoid ―too much‖ in certain line
  items and all hard-to-explain line items, focus
  on direct program costs
Literacy Agency, cont’d
• Use of volunteer tutors means a $1.1 million org
  on audit, $400K org on 990
• Admin and F/R ratios a ―wasteful‖ 30+% based
  on 990, ―efficient‖ 12% based on audited
  financials
   – Agency has been threatened with cutoff by a
     funder using 990
• No trained financial staff person; 1 admin
  director
• Timesheets support allocation by functional
  expense category
 Literacy Agency, cont’d


• Class Z office space, very junior staff, cast-off
  furniture, etc.
• Lack of infrastructure funding handled by
  paying low salaries and doing without
 $2.5M Food Bank
• 60% govt funding, 40% contributed
• 3-day/week grantwriter; CEO relationships important
  to many funding sources
• Foundation grants, spec. events, newsletter, UW,
  churches, local corps.
• Zero fundraising cost on 990 was “a mistake”
• All admin staff share one office, roof leaks, broken
  furniture
• Low salaries: “We couldn’t replace X for what we pay
  her.”
• “The advantage of running a thrifty organization is
  that you continue to get support.”
Food Bank, cont’d
• $2M food donations, $500k cash expenses
• 2.2 FTE admin and F/R staff allocated across
  functional expense categories by fixed percent;
  no time tracking
• 990 prepared by contract accountant
• Change in food inventory led to $250K surplus
  and deficit in adjacent years
• Donations for capital purchases led to phony
  ―operating surpluses‖
$40M Diversified
Human Services Agency

• 80% govt., 10% contributed, 10% other program
  service
• CDO has 7 reports
• Senior execs heavily involved in govt funding, in
  other F/R as orchestrated by dev. dept.
• Board, spec. events, foundation grants, corps.,
  planned and major gifts, newsletters
• Zero fundraising cost on 990. No one noticed.
Diversified Human Services, cont’d

• CFO has 27 reports
• Auditor prepares 990
• Functional expense breakout on audit; Staff charged to
  cost centers, cost centers charged to functional
  expense categories. No time tracking by category.
  ―What would be the benefit?‖
• Primarily public sector funding; percentage for admin
  ranges 0-15%
• 600 employees, 40 locations: no backup for 1-person
  payroll, benefits, phone support, and network support
• No evaluation, internal audit, or quality improvement
Conclusions

• Functional expense tracking of personnel time
  low priority, low perceived benefit
• Glaring 990 errors even when prepared by
  auditors, CPAs
• NPOs responding to perceived pressure to keep
  real and reported M&G but esp. fundraising
  ratio low
• Fundamental issues with GAAP and 990 rules for
  donated goods and services, and capital gifts
Conclusions, cont’d

• Personnel costs in fundraising are generally not
  tracked
• Relative costs of different fundraising methods
  are generally not considered in the
  management of fundraising
• NPOs generally classify gov’t funding as direct
  public support on 990, but do not classify costs
  of raising those funds as fundraising costs
Conclusions, cont’d


• Hard to raise adequate funds for admin.
  infrastructure at all sizes
• NPOs responding with varying mixes of
  paying low salaries and doing without
• ―You get what you pay for‖ with
  infrastructure
Survey Questions

•   Use of staff and volunteers
•   Use of fundraising information systems
•   Fundraising methods
•   Auditing and cost allocation
•   Professional fundraisers
•   Standards & requirements of donors & others
•   Indirect fundraising by affiliates or federated funding
    orgs.
 Research Question
• Are some fundraising strategies more efficient
  than others? I.e., do they generate more direct
  contributions per dollar of fundraising expense?
Survey Results
• Mailed surveys to 3,000+ NPOs
• 1,500+ returned (51% response rate)
• Sample was stratified random sample:
  – Stratified by: Size & Subsector
• Sample and responses both closely mirror
  overall nonprofit sector.
 Survey Results:
 General Caveats and Concerns

Surveys always have several sources of possible bias:
  • Non-responders may differ from responders
     systematically in important ways.
  • Item non-response bias among responders.
  • Veracity of responses.
  • Perceived incentives to respond.
Survey Results:
General Caveats and Concerns
  Not always clear whether responders declared
  costs in a consistent manner:
    • Direct costs (printing and postage)
    • Direct labor costs
    • Indirect labor costs (CEO, etc.)
    • Indirect costs (rent, utilities)
    • Gross vs. net revenues for special
      events and mailings, etc.
Means, Medians, 1st & 3rd Quartiles:
An Example
    Organization 1       0
    Organization 2       2
    Organization 3       3   1st Quartile = 3.5
    Organization 4       4
    Organization 5       5
    Organization 6       6   Median = 6.5
    Organization 7       7
    Organization 8       8
    Organization 9       9   3rd Quartile = 9.5
    Organization 10     10
    Organization 11     50
    Organization 12   1000

    MEAN               92
 Special Events

• Pct using this method (among fundraisers): 60%
• Number of complete responses: 540
  – Mean: 9.1
  – Median: 3.2
  – 25th & 75th Percentiles: 2.0-6.3
Special Events
                                    25 %tile   Median   75 %tile
No dev. Staff (ft, pt, consultants)   6.7       14.1      25.2
One dev Staff                         4.8        9.8      26.4
>1 dev staff                          3.6        7.7      18.1
Contributions < $50,000                 1.7      3.6      7.1
Contributions $50,000-$250,000          1.8      2.9      5.5
Contributions $250,000-$1M              2.3      3.3      7.1
Contributions > $1M                     2.2      3.3      6.0
Arts                                    1.8      3.0      5.0
Education                               1.9      3.6      8.1
Health                                  2.4      3.2      8.7
Human Services                          2.1      3.3      6.3
Public Benefit / Religion Related       1.7      2.9      6.3
Environment / Animals/ Intl / Unknown   2.0      3.3      6.5
Supporting                              2.0      3.1      5.9
 Direct Mail

• Pct using this method (among fundraisers): 59%
• Number of complete responses: 541
  – Mean: 36.4
  – Median: 10
  – 25th & 75th Percentiles: 4.5—25.9
Direct Mail
                                       25 %tile   Median   75 %tile
Contributions < $50,000                  5.3       12.0      29.2
Contributions $50,000-$250,000           5.0       10.7      27.1
Contributions $250,000-$1M               4.2        9.3      24.6
Contributions > $1M                      3.4        7.1      20.0

 No dev. Staff (ft, pt, consultants)     6.9       15.1     32.2
 One dev Staff                           4.3        9.6     23.2
 >1 dev staff                            3.3        7.1     18.6
 Arts                                     4.9       9.9      24.8
 Education                                5.0      10.8      39.9
 Health                                   3.6       8.9      25.0
 Human Services                           4.5      10.1      26.9
 Public Benefit / Religion Related        4.1      13.8      31.5
 Environment / Animals/ Intl / Unknown    2.2       5.7      16.7
 Supporting                               4.1      10.8      26.0
Telephone Calls


• Pct using this method (among fundraisers): 23%
• Number of complete responses: 61
  – Mean: 54.7
  – Median: 11.9
  – 25th & 75th Percentiles: 2.6-42.0
 Federated Fund Raising

• Pct using this method (among fundraisers): 21%
• Number of complete responses: 80
  – Mean: 452.9
  – Median: 28
  – 25th & 75th Percentiles: 7.9 – 63.3
 E-Mail

• Pct using this method (among fundraisers): 4%
• Number of complete responses: 10
  – Mean: 17.6
  – Median: 7.5
  – 25th & 75th Percentiles: 0.5-21.3
 Web

• Pct using this method (among fundraisers): 17%
• Number of complete responses: 24
  – Mean: 8.8
  – Median: 7.0
  – 25th & 75th Percentiles: 1.8 – 10.0
 Congregations

• Pct using this method (among fundraisers): 16%
• Number of complete responses: 64
  – Mean: 50.3
  – Median: 18.0
  – 25th & 75th Percentiles: 6.1 – 60.3
 Door to Door

• Pct using this method (among fundraisers): 3%
• Number of complete responses: 11
  – Mean: 42.1
  – Median: 10.0
  – 25th & 75th Percentiles: 5.0 – 77.0
 Foundation Proposal Writing

• Pct using this method (among fundraisers): 64%
• Number of complete responses: 324
  – Mean: 6.90
  – Median: 20
  – 25th & 75th Percentiles: 7.7 – 60.0
Foundation Proposal Writing
                                 25 %tile   Median   75 %tile
Contributions < $50,000            6.2       25.5      58.8
Contributions $50,000-$250,000     7.6       18.0      61.3
Contributions $250,000-$1M         7.4       20.2      68.0
Contributions > $1M                8.2       16.6      45.4

Arts                                8.0      20.6      64.2
Education                           6.7      22.6      230.0
Health                              7.0      12.0      72.5
Human Services                      9.1      20.0      46.1
 Government Proposals

• Pct using this method (among fundraisers): 53%
• Number of complete responses: 287
  – Mean: 869.8
  – Median: 27.5
  – 25th & 75th Percentiles: 9.5 – 102
Government Proposals
                                     25 %tile   Median   75 %tile
Contributions < $50,000                 3.1      10.0      49.9
Contributions $50,000-$250,000          9.4      27.3     149.6
Contributions $250,000-$1M             10.0      28.4     105.8
Contributions > $1M                    10.0      30.6      91.3

 Arts                                   6.2      19.1     116.8
 Health                                 9.6      34.6     98.4
 Human Services                        10.2      31.4     100.7
 Public Benefit / Religion Related      4.1      14.9     114.6
Major Gifts

• Pct using this method (among fundraisers): 30%
• Number of complete responses: 124
  – Mean: 172.7
  – Median: 24.0
  – 25th & 75th Percentiles: 8.4 – 100.0
Major Gifts
                                 25 %tile   Median   75 %tile
Contributions < $50,000              -         -        -
Contributions $50,000-$250,000      4.3      22.7     100.0
Contributions $250,000-$1M         10.0      25.2     101.9
Contributions > $1M                 8.1      23.1     100.4
Capital Campaigns


• Pct using this method (among fundraisers): 16%
• Number of complete responses: 79
  – Mean: 427
  – Median: 20
  – 25th & 75th Percentiles: range: 8.0 – 53.8
 Planned Giving

• Pct using this method (among fundraisers): 20%
• Number of complete responses: 80
  – Mean: 690.8
  – Median: 20.0
  – 25th & 75th Percentiles: 7.8 – 100
Conclusions
• Fundraising Methods matter.
• They have different returns on investments.
• Other project research using Form 990 data
  found similar results: methods matter.
   • Also found that the cost of fundraising
     varies by size and subsector quite a bit
     and by age a little.
   • Still much unexplained.
Next Steps
• Work with fundraisers, CPAs, and nonprofits to
  improve their understanding of reporting
  potential and problems
• Improve the quality of reporting so that more
  detailed information can be used for better
  decision-making in the future
More Resources


http://www.coststudy.org

								
To top