Measuring Fundraising Effectiveness: Insights from BoardSource

Introduction

Fundraising is central to the success of nonprofits, yet it’s often misunderstood. Many focus on the cost of fundraising as a standalone measure of success, but BoardSource, a leading authority on nonprofit governance, offers a more nuanced approach. Their guide, *Measuring Fundraising Effectiveness*, emphasizes a broader perspective that evaluates multiple factors to provide a complete picture of fundraising health.

Why Cost of Fundraising Alone Falls Short
A common misconception is that organizations should minimize fundraising costs at all costs. While efficiency is important, overly focusing on reducing expenses can lead to underinvestment in strategies that build long-term sustainability. BoardSource highlights that fundraising is not a “necessary evil” but a mission-critical activity that fuels organizational impact.

Three Key Metrics for Fundraising Success
BoardSource recommends evaluating fundraising effectiveness using three primary measures:

1. Total Fundraising Net: This metric calculates the funds available for the mission after accounting for fundraising expenses. It’s determined by subtracting total fundraising costs from the total amount raised. A strong total fundraising net ensures the organization has the resources to deliver on its mission.

Example: If an organization raises $1,000,000 and spends $200,000 on fundraising, the net is $800,000.

2. Dependency Quotient: This measure assesses how reliant an organization is on its top donors. High dependency indicates vulnerability to shifts in donor priorities, while a lower quotient suggests resilience.

How to Calculate: Contributions from the top five donors divided by total expenditures. For instance, if the top five donors give $250,000 and the organization’s expenses are $1,000,000, the dependency quotient is 25%.

3. Cost of Fundraising: This efficiency measure reflects the average cost to net one dollar of revenue. While a lower cost is desirable, it should be considered alongside the other metrics to avoid discouraging investment in growth-oriented strategies.

How to Calculate: Total fundraising expenses divided by total fundraising net. For example, if $50,000 is spent to raise $150,000, the cost of fundraising is $0.50 per dollar raised.

Balancing Risk and Reward
BoardSource emphasizes that a healthy fundraising strategy balances low dependency on major donors with reasonable costs. Broad-based tactics, like events or direct mail, often have higher costs but reduce reliance on a few contributors. Conversely, major gifts tend to be more cost-effective but increase dependency risks. A well-rounded strategy uses a blend of approaches to mitigate risks and maximize opportunities.

Looking at the Big Picture
Effective fundraising requires a long-term view. Evaluating success over time—ideally three years or more—helps organizations understand the interdependence of various tactics and make informed decisions about future investments.

Final Thoughts
BoardSource’s framework provides nonprofits with a responsible, mission-centered approach to measuring fundraising effectiveness. By combining the total fundraising net, dependency quotient, and cost of fundraising, organizations can better understand their financial health and make strategic decisions that support their missions. For more details, visit BoardSource’s website, https://boardsource.org.