Showing organizational efficiency through ROI

Chris Harris
Chris Harris

[Publisher’s note: This article was provided by Blackbaud, a maker of fundraising software. Blackbaud is a PJ business partner.]

On what seems like a daily basis, there is a new report, blog post or television debate focusing on nonprofit organizational efficiency.

The focus may vary, but often zeroes in on fundraising costs, net dollars raised after accounting for overhead, or dollars directly applied to a nonprofit’s mission.

The federal government is monitoring nonprofit activities like never before.
Donors are clamoring for more and more transparency from nonprofit leaders with respect to the use of their contributions.

With this increased scrutiny of nonprofit fundraising operations and the desire for a greater return on investment (ROI) — both from an internal and external perspective — development offices must be prepared to demonstrate their impact and value to all audiences.

From an internal perspective, there are several measurements organizations must look at.

The most important focus when determining ROI and impact is the effectiveness of all personnel involved in fundraising activities, which can be gauged by examining fundraisers compared to fundraising dollars.

This boils down to determining concrete measurements or key performance indicators.

Common factors include the number of quality visits and number of open and closed proposals from a revenue standpoint, and total salaries and benefits from an expense standpoint.

Another key area to look at is fundraising compared to administrative costs.

It is far too easy to get wrapped up in the day-to-day office-related activities associated with fundraising.

The true measure of a fundraiser is in dollars and cents. That is where his or her focus should lie and where his or her greatest impact is felt.

Perhaps one of the greatest opportunities to immediately improve efficiency is through internal collaboration.

Fundraising operations within nonprofit organizations have traditionally been on the outside looking in with respect to other activities within the organizations.

Increased collaboration between fundraising staff and other staff not only improves employee engagement, but also enhances fundraising effectiveness by creating organizational advocates and demonstrating to the entire organization the impact and value of development.

From an external perspective, potential supporters examine several different factors when determining its impact and value.

Among these are the mission (is the organization true to its mission?), the size (returns will vary based on size and scope), the constituency profile (socio-economic, geographic and demographic variations will affect ROI as well as potential impact), and the maturity of the organization (more established organizations deserve a higher expectation of increased ROI and impact).

Giving by nonprofit board members should be a leading indicator of whether the organization is serving its purpose.

This should not be viewed solely by dollars but also participation.

If an organization is receiving support from its board, a donor should feel more comfortable supporting this cause and will thus feel his or her ROI is much higher.

From a traditional business perspective, ROI is calculated by totaling all gains from investments, subtracting the total costs associated with the investments, then dividing by the total costs.

All nonprofit fundraising operations should utilize this traditional measure by adding total compensation for fundraising staff (including benefits and salaries) to total expenditures for fundraising not including compensation (travel, postage, etc.) to determine total fundraising expenditures.

That number then should be subtracted from total fundraising revenue, then dividing by the total fundraising expenditures:

(Total Fundraising Revenue – Total Fundraising Expenditures)
                            Total Fundraising Expenditures

ROI is an important variable in evaluating a fundraising operation, and therefore a vital measure of the organization’s overall impact and value.
All fundraising personnel should be invested in keeping this number as high as possible.

However, it is but one variable in a very large equation of fundraising effectiveness measurement and should be incorporated as such into all internal and external evaluations of fundraising performance.

Chris Harris is a Blackbaud consultant.

Leave a Response

Your email address will not be published. All fields are required.