Fundraising Activities with High Return on Investment
Fundraising is like the stock market. Some stock options are conservative or highly volatile. You have to take a risk to gain or lose a profit, but you need to be strategic about it. You can measure an investment’s profitability by assessing its return on investment. Similarly, in a fundraising world, you have to invest in your donors, be strategic and determine which fundraising activities will produce a high return on investment. Also, to help you determine which fundraising activities utilize your organization’s limited resources efficiently.
What is a Return on Investment (ROI)?
A return on investment (ROI) is assessing the effectiveness of a fundraising activity. How do you know that a fundraising activity is the best use of your organization’s resources or is the greatest source of revenue? ROI is the most important fundraising metric that organizations should be tracking, and here is how you can assess each of your fundraising activities.
To calculate the return on investment for any fundraising activity, subtract the total amount spent on that fundraising activity from the total amount raised, then divide that result by the total amount spent activity, and multiply by 100 to get the percentage (see the image below for the ROI formula).
Let's look at an example of an auction fundraiser. Let’s assume:
Total amount raised from the auction: $97,450
Total amount spent to set up the fundraiser: $43,490
[ ( 97,450 - 43,490 ) / 43,490 ] x 100 = 124.07 %
The calculation shows that hosting an auction fundraiser has a positive ROI.
Note: If you find your outcome a negative ROI, it means you’ve lost money. If your outcome is a zero ROI, you’re at break-even (the amount raised is the same as the amount spent). If your outcome is a positive ROI, then your organization is generating money. Greater ROI means that it is more efficient. Use this formula as a performance metric to minimize your cost while increasing your returns each time you host the same activity.
That fundraising activity with the greatest ROI is…
It depends on your donors and your organization’s resources. Before you dismiss this article, please allow me to explain it further. There are two thoughts that many consultants will agree on: a) what works for one organization may not for another, and b) if you do not try a particular fundraising activity, then you would not know if that activity produced a great ROI and should be kept within your fundraising portfolio. However, we’ve worked with different organizations to confirm a trend, including acknowledging several studies from other development professionals that also support the trend, that cultivating a meaningful relationship with a few donors does better than hosting an event for a large audience. Yes, it is individual giving, particularly major gifts donors, that makes for the best ROI in any organization’s fundraising efforts. However, every organization should have a diverse portfolio of fundraising activities to maintain a stable revenue.
Below is a list of different fundraising types, starting with the strongest ROI to the least.
Bequests - A bequest is a transfer, by will, of personal property, cash, or other tangible property after the person has passed away. Another name for a bequest is planned giving. Bequest donors want to leave behind a legacy. They are giving away the biggest gift of their lifetime, and it could be real estate, stocks, retirement funds, or cash assets. Imagine spending time four to six times a year stewarding bequest donors where persistence is paid off in large sums (ranging $10,000 to millions of dollars). Bequests usually deliver the largest ROI of any fundraising activity. Unfortunately, not many organizations are making efforts to include bequest donors in their portfolio, but we would suggest they do.
Tip: Stewardship and persistence is the key to a successful bequest gift.
Major Gifts - A major gifts program is a list of donors that are likely to give a significant amount, which may be a one-time gift or recurring gifts. Even though it may take months or years to cultivate major gift donors, patience is worth the investment as long as you're building a transformational relationship with your donors. Additionally, these donors can influence others around them to also give to your organization. Similar to bequest donors, you would spend at least four to six times interacting with the major gift donors before you solicit, but then you would need to steward a few times afterward before making the next ask. The great thing about building a major gifts program is that you can upgrade most of your donors each year (meaning you can ask them to give a greater amount over time). You are typically not spending much on major gift donors; mostly it is just your staff’s time. So, you can rely on a major gifts program to generate the most generous ROI (if not counting bequests in your portfolio).
Tip: Build transformational relationships, not transactional ones.
Annual Campaign - An annual campaign seeks gifts on an annual or recurring basis from the same group of donors, usually to support the operating budget or programs. It is easy for donors to remember a traditional campaign and they know what to expect. You would need to put together a compelling case for support, recruit volunteers (including staff and board members) to help spread the word about the annual campaign, and spend all day entertaining donors. Typical expenses include platform fees, marketing materials, staff time, and entertainment.
Tip: Develop a compelling case for support and an easy-to-use platform for donors to make their gifts.
Direct Appeal - A direct appeal is solicitation of gifts through mass communications (can be mail, phone, or email). It takes an incredible story for a donor to empathize and make their gift, but it is also a hit or miss on whether that message reaches the donors. Donors could view the message or ignore it for a variety of reasons, including being too busy, not interested in the topic, or the message being sent to the wrong address. Potential costs include postage (or data rates for phone and email), marketing materials, and staff time. It may feel like the organization is bleeding a lot of money through direct mail campaigns, but keep in mind the generational difference in your donors. Some people still love receiving paper mail and some others love social media. Writing to your donors on a monthly basis (or daily/weekly over social media) produces a moderate ROI depending on your target audience.
Tip: Write a compelling donor-centric story (placing your donors as heroes of the story).
Events - Events are designed to attract and involve a large audience for the purpose of raising money or fostering relationship building. Even though events are fun, they can be costly. You would have to book a venue, decorate the place, buy food and beverages, hire entertainers and speakers, collect auction items, and so much more. Additionally, it could take approximately two months to eighteen months to plan and execute a successful event. Events are easy to compare ROIs. For example, a walk-a-thon has a higher ROI than a concert, and is much simpler to plan and execute. An auction gala fundraiser has multiple components, including planning a strategy, procuring items, managing volunteers, encouraging board members to bring guests, and a whole lot of organizing. Overall, planning events requires a significant amount of resources to plan and execute them. So, be reasonable about the number of events your organization should host, despite the thrill of receiving large donations the day of. Events present the lowest ROI of any fundraising type.
Tip: Plan a fun event for your donors that does not require too much planning time and resources.
But what about grants… where do they fit in on the list…
Grants - Grants are funds received through a foundation, corporation, or government entity. It requires excellent writing and persuasion skills. You have to search for the right opportunities to apply for and persuade the grantor to award your organization. Mostly it is the grant writer’s time and competing with other organizations for the same fund. So, we would not suggest comparing the ROI of grants with other fundraising activities because grants are unique opportunities (and should still be part of the fundraising portfolio).
Tip: Write a compelling case for support, that your organization is the solution to the problem.
Assess Your Organization’s Fundraising Activities
If your organization hosts annual fundraising activities, tracking the history of data will help calculate each activity’s ROI and effectiveness. It’s like the saying, “If it ain’t broke, don’t fix it.” Well, it is more of let’s assess your ROIs and determine whether we should improve them (minimizing resources spent to increase revenue) or replace them entirely with a more efficient activity. Moreover, we will look at your organization’s resources, mainly your staff’s time. If your organization's staff is overwhelmed with most of their time spent on event planning, then we would suggest cutting back or the best use of their time on other fundraising activities, so your organization can generate more revenue with less effort into it. Lastly, we would assess your donors’ interest. Are they becoming bored of the same activity where the ROI has demonstrated a decline each year? Will introducing a different activity retain your donors for the next five to ten years? Donors can affect the type of fundraising activities you coordinate. So, it is important to understand and value ROI as a tool because you have limited resources to do great things for your organization. Your donors want to see you make a significant impact with fewer donations.
With our expertise and fundraising experience, we can help you assess the ROI of all of your fundraising activities and make recommendations. Contact us for a 30-minute chat today!
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