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and best practices to help your organization move more people to action.
Fundraising and communications: Investments or expenses?
Mon January 26, 2009You’ve probably heard the rule of thumb that fundraising and overhead expenses should be no more than 10-20% of your overall budget. You may have heard a smaller or larger percentage, but probably in that ballpark. But isn’t laying the groundwork and communicating your purpose to build a movement as much a part of carrying out a non-profit’s mission as actually spending the resources you raise on on that purpose?
Sasha Dichter makes a good point over at his blog:
“…it’s not just a little wrong to try to separate out “program” from “overhead,” it’s an outdated (or maybe it was never right) mode of thinking that is based on the premise that nonprofits are primarily delivery mechanisms for pre-determined services. In reality, nonprofits play an active role in shaping our collective understanding of how to solve important social problems.”
Laying down a marker for overhead or fundraising of 10-20% might be the easy way to measure organizational efficiency. You can say whether you are hitting the benchmark. You could even say if you’re improving over time. But I would argue that it is not the best.
Wouldn’t it be better to look at those different expenses in the overhead and fundraising categories (or really all of your organization’s spending) and develop a measure of each for return on investment?
Fundraising is (relatively) easy: the goal is to actually raise funds. You can figure out ROI for every dollar you raise. Put another way – you can know how much it costs to raise a dollar.
What about other “overhead” expenses? For most organizations, this is everything that isn’t programming. Can you determine what and how investing in another staff member will further your mission? Can you measure that in a way that describes your ROI? How about for a new web site? Professional Development or training of staff?
I think my point is that we need to view all expenses as investments. You don’t invest in anything unless you at least have a target return in mind. If your annual report can articluate the return on all of your investments, including overhead, and that number improves over time, then you’re well on your way to making an impressive case for an increase in funding from investors.
What do you think? Is that 10-20% rule of thumb outdated?
-Stephen
3 Responses to “Fundraising and communications: Investments or expenses?”
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I don’t know that I necessarily agree that it is outdated to think that nonprofits are primarily service delivery mechanisms. Our organization’s mission is to help low-income kids get into college. When we were a small-budget organization, that meant almost entirely service delivery. As we’ve grown, that mission has morphed, though, and we are now investing in more of the functions (from fundraising to HR to a documentary of our work) that help us expand that mission to reach not just the students in our program, but low-ncome kids across the country who may never even know who we are. I’m proud to say that this was in prompted at least in part by a funder who thought that, with our record of success and plans for growth, we were actually spending *too much* on programming! So, some funders do get it. If only the IRS agreed…
It might not be outdated, but if I understood you right, you said that you’re organization has grown to do more than deliver services. You’re actively participating in shaping perceptions of low income kids to encourage them to seek out college opportunities. People may still think of you primarily as delivering a specific service, but as you said you are growing.
I think funders are starting to shift their focus. But aren’t they still looking for some way to measure success? What should replace the current way?
I’ll just stay away from the IRS issues…
Stephen, I guess I’m saying both: *some* nonprofits (the younger us) are, in fact, rightfully focused on service delivery, and I think it’s unfair to consider that outdated. While other nonprofits (the newer us) are, in fact, unofficially expanding the mission, in a way, to think of communications and advocacy as a way to accomplish the goal.
I love the question about measurement. It relates in my mind to one of the other blog posts about how the best way to get support is to create something of value! But, how to measure success if you’re thinking of your mission in this expanded way? We look at our overall “cost per student” (total budget / number of students served). In some ways, this works: it allows you to determine whether increased communication, fundraising, and other administrative costs translate into more students or not.