What Is the Real Cost of Fundraising?

Cost income ratios: the bane of a fundraisers life. Too high and you face criticism from the public, too low and you stifle future growth. So, what should your cost of fundraising be? How does your ratio compare to others and how does your ratio compare to public expectations?

We know it is difficult to compare cost ratios using annual reports as there can be huge fluctuations in income if your organisation relies on bequests and inconsistencies in how costs are allocated. Based on 50 annual reports we arrive at a figure of 32% and if we remove bequests this increases to 37%.

Based on the management accounts from 17 charities of different sizes in different sectors we can now look at a variety of cost ratios. We can exclude bequests as their volatility is so great, we can make sure salaries are included and we can look at individual program areas. On this basis the overall cost ratio is 41%.

But, as the graph illustrates the range is from a low of just 10% to a high of 65%. The overall ratio is determined by many factors:

• Fundraising mix: an organisation with a high reliance on fundraising such as lotteries or events will usually have a higher cost ratio
• Organisational size: smaller organisations who are often more reliant on major donors can have greater variability of their ratio
• Fundraising maturity: a charity that is at the beginning of investing in regular giving acquisition will suffer from a higher ratio until the program is established.
• Organisational culture: this is probably the greatest influence – the willingness to invest in fundraising sustainability.

Digging into the program areas we see great variations in the ranges

Events: 3% to 157%
Bequests: 1% to 262%
Direct Marketing 3% to 100%
Corporate 1% to 33%

It is important for fundraising leaders to know how their organisation compares to others on a range of indicators, not just cost income ratio. The More Cost Effectiveness Benchmarking service examines indicators such as:

• Cost income ratio – by program
• Fundraising mix – how reliant on each type of fundraising are organisations
• Return on labour – how much does each dollar invested in fundraising staff earn
• Income per Head of population – by program
• Growth rates – by program, gross and net for 1 and 2 years

To understand “How well you are doing” call Martin on 0435 306202 or click here for more information.

More strategic is a specialist not for profit fundraising and management consultancy that examines charity performance, analyses cost income ratios and tracks charity annual reports.