Donors and other stakeholders continue to look for more accountability and transparency from nonprofits, especially regarding fundraising. Not only is the sum of money raised in campaigns meaningful, but how efficiently you’re able to raise it, too.

Interested parties look beyond total dollars raised to also consider associated costs in fundraising efforts. Cost ratios that present fundraising costs as a percentage of funds raised (also known as cost-per-dollar) focus on the expense of fundraising, while return on investment (ROI), importantly, focuses on the returns. It makes sense to track both.

Determining ROI vs. cost ratios

The formula for ROI uses the same inputs as the cost ratio but flips them:

ROI = Fundraising revenue / Investment in fundraising (Fundraising expense)

Focusing not only on the big picture but on specific fundraising activities will allow your organization to identify its weaker methods and strategies and improve its overall fundraising performance. Which of your fundraising activities generates the highest return? Once you establish a baseline, you can see where your results are improving and which programs are most effective.

Some organizations feel it’s more meaningful to measure gross revenues raised compared to the fundraising expenses for that effort. However, many follow a more traditional method of measuring ROI using net revenues (revenues minus the related expenses) when comparing to costs. Either way is OK, but you must be consistent by measuring your revenues in the same way for each year and campaign. And remember, these metrics are only meaningful when you compare fundraising activities or trends from one year to prior years.

Calculating the inputs

There are other considerations. How, for instance, do you compute your “fundraising expense”? Although the revenue information is easily available to your development staff, your accounting staff should be recruited to gather data on expenses at the same level of detail by campaign or fundraising effort.

Your fundraising expense should include the direct costs of the initial effort, as well as later efforts. Initial costs might include the investment to create a new donor relationship (for example, online advertising costs or the costs of a phone campaign), while subsequent costs include those associated with maintaining that relationship (for instance, the costs of a renewal mailing).

What about indirect or overhead costs? Be consistent! If you exclude those that you would incur with or without the monitored activity, such as the costs for your website or donor database, make sure they are excluded from every campaign metric. For both costs and revenues, you should use rolling averages that cover three to five years. This will reduce the effect of “one-offs,” whether in the form of a significant donation or an economic downturn. You’ll also avoid penalizing fundraising activities, such as a major gift campaign, that require some time to show results.

Calculating these metrics will help you make better decisions when it comes to allocating your fundraising resources. But keep in mind that ROIs can vary greatly by activity, and a lower ROI doesn’t necessarily mean you should cut the activity. One fundraising expert suggests striking a balance between high-cost, high-potential long-term activities and low-cost, short-term activities.

A win-win scenario

Going to the effort of computing the cost ratios and ROIs is a win-win. With this information in hand, you can make more informed decisions and satisfy your stakeholders. Your CPA can help you in these efforts.




SKR+Co Not-for-Profit Newsletter

June 2014


Footnotes tell a story — What constituents can glean from your financial statements


When reviewing financial statements, nonprofit board members and managers sometimes make the mistake of focusing solely on bottom-line figures, but these statements also may include a wealth of information in their disclosures. Savvy constituents and potential supporters know this, so nonprofit executives need to be familiar with the common types of disclosures and the information they make available for scrutiny. This article notes the information that statements provide regarding accounting policies, related party transactions, contingencies and other matters. A sidebar describes a particular Form 990 disclosure that has gotten renewed attention.

Read the Full Article Here.


Tips for preventing fraud in your organization

Fraud doesn’t just hurt a nonprofit’s bottom line — it also could do devastating damage to its reputation. However, this article discusses how, by implementing some simple controls, an organization can help protect itself from these risks. These controls involve segregation of accounting duties, fraud awareness training for all employees, establishment of a fraud hotline, and risk assessment.

Read the Full Article Here.


Not all funds are created equal


Types of funding vary greatly in how they can — or cannot — be used. This article discusses the differences between permanently restricted funds, temporarily restricted funds and unrestricted funds, and how to beef up donations of the latter.

Read the Full Article Here.


Newsbits — A-133 audit threshold change, online fundraising failures, and new open data tool


In this issue, “Newsbits” takes a look at Office of Management and Budget rules that reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits. It also discusses a study showing that most organizations have room for improvement with online fundraising, and notes an online tool that provides free and open access to data on nearly 82,000 independent, corporate, community and grantmaking operating foundations.

Read the Full Article Here.




Steve Hochstetter, CPA, ABB, CFF,CVA
Audit Partner



Jamie Meidinger, CPA
Audit Manager



Jeff Talus, CPA
Tax Partner

Doreen Merz, CPA
Tax Manager



For more information on our Not-for-Profit services, please see our website HERE.






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