Tracking your organization’s fundraising return on investment (ROI) is one way to monitor the value of different fundraising techniques. It can help guide future investments in your fundraising infrastructure. But, as a growing body of research suggests, constantly comparing your returns to other organizations—or focusing exclusively on your own highest-return initiatives—is not the best lens for evaluating effectiveness. Why?
The cost to raise a dollar varies widely; fundraising channels, fundraising programs, and donor segments will likely have different ROIs, even within your own organization. On top of those factors, your organization’s maturity, sector, and size affect fundraising ROI, making industry-wide comparisons difficult.
There’s also the argument that fundraising yield is not always the best way to measure the success of fundraising efforts. The lifetime value of new donors or prospects, for example, is more important than the value of the first gift or first connection. A fundraising program that emphasizes high-yield major gifts may run out of prospects if low-yield but high-volume initiatives (e.g., direct mail, events) are ignored. A healthy fundraising program uses a balance of techniques.
In recognition of this complexity, in 2017, a coalition of organizations (AFP, BoardSource, GuideStar, and BBB Wise Giving Alliance) released recommendations for a new way of evaluating fundraising effectiveness. The new definition includes three key data points:
- Total Fundraising Net: Are we raising enough money to fund our work?
- Cost of Fundraising: How much does it cost us to net a dollar?
- Dependency Quotient: What percentage of our budget would be unfunded if we lost our top five donors?
The Dependency Quotient, illustrated below, highlights the need for a balanced fundraising program. Low-cost fundraising initiatives are also high-risk.
We recommend to our clients that they track the ROI on their fundraising efforts—while acknowledging it as only one piece of a larger picture.