Reposting one of our most popular nuggets from Tom about how to measure success and productivity in your Development Operation.
RETURN-ON-INVESTMENT: What every Investor wants from their investment and what every For Impact organization should want from its development/advancement/fundraising effort.
I feel this concept is completely absent or totally misunderstood from our sector – Something I want to help change.
With all due respect to the industry, I just don’t get it. An organization invests money and resources in their development/fundraising operation (whether it’s a one-person shop or 50 people in the college advancement division) but doesn’t measure that RETURN-ON-INVESTMENT. I’m not sure how else you would measure productivity or success without making ROI the #1 barometer.
ROI is very simple to calculate. It’s a numerator/denominator math problem:
- Here’s how much money we Raised (the numerator).
- Here’s how much money we spent/Total Expenses (denominator).
R – TE = NET, NET, NET CHECK/FUNDS to support IMPACT!
In the For Impact approach, the development function ‘write checks’ to the IMPACT.
R ÷ TE = ROI and COST OF FUNDRAISING.
For example, if you are a hospital foundation raising $2M a year in ‘fundraising Revenue and your total expenses are $1M then your ROI is 2X or 100%; and your cost of fundraising is 50%.
There are two ways to increase your ROI and decrease your cost of fundraising:
- Increase the Numerator (Revenue)
- Decrease the Denominator (Expenses)
In our For Impact world, our own benchmarks are as follows:
- 3X is minimum model/benchmark.
- 4X is great.
- 5X is something you should be very proud of.
If you’re running a Campaign within an existing development operation or as a separate initiative, I believe the cost of fundraising should be a nickel (five cents on the dollar.) That would give you a 20X ROI.
If you are a For Impact leader, senior staff, executive director or a board member, I hope the above gives you some sense of comparison.
One last example of why ROI
is a completely different level of thinking than simply “This is how much money we raised this year.”
I can guarantee
a small not-for-profit organization an additional $100,000 this year – Hire two ‘major gifts officers’ at $50,000 apiece. Send them to For Impact Boot Camp. I guarantee
that they can go out and raise $100,000 in the next year (combined.)Same thing would be true with a larger organization at $1M. Hire five major gift officers at $200,000 each. I’m fairly confident if they followed any sales process
they would each be able to raise $200,000 in the next year for a total of $1M.
Ok, I think you get the point.