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Measuring Fundraising Effectiveness

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While fundraising is a major activity for all nonprofits, it is especially vital for small organizations that rely on it as a major source of revenue. In today’s competitive landscape, possessing strong fundraising skills is vital to an organization’s success. While nonprofits have many things in common, a defined mission, an effective team, procedural integrity, and solid fiscal management to name a few; having efficient operations in place and mastering the ability to match expenses with fluctuating fundraising-based revenues separates the most successful nonprofits from the pack.

Evaluating the effectiveness of fundraising programs should be part of every nonprofits’ routine. So, when was the last time you assessed your fundraising effectiveness? How are you measuring success?

In recent years, experts have cautioned nonprofits against relying too heavily on financial ratios and overhead costs as a means for measuring fundraising effectiveness, mainly because these metrics fail to account for factors such as an organization’s overhead expenses. Another metric under scrutiny is the actual cost of fundraising, or how much money it takes to raise a dollar for the organization. Many nonprofits mistake low fundraising costs as an indication that resources are being used efficiently.

If you want a complete picture, we recommend a holistic approach to measuring your fundraising effectiveness. While it is important to monitor financial ratios and overhead costs, there are additional metrics to consider that can help determine how healthy your fundraising program truly is. For example, organizations should be aware of their dependency on top donors. A dependency quotient is a measure of risk that looks at the extent to which an organization is dependent on its top donors to fund its work. This number reveals how vulnerable the organization would be if they lost their major source of revenue. It is calculated by dividing the sum of contributions from the five largest donors by the organizational expenditures. The dependency of an organization on its top donors is inverse to the traditional cost of fundraising. Groups who allocate more resources for fundraising will have a low dependency quotient because they collect a large quantity of small donations. Groups that solicit big-dollar donations from a small pool of generous donors are vulnerable; the loss of even one supporter would financially devastate the entire organization.

Looking at one metric or isolated fundraising event will not tell a comprehensive story. Unfortunately, a magic equation to calculate the effectiveness of nonprofit fundraising does not exist. However, the good news is that there are many tools available to nonprofits that will help measure their fundraising effectiveness and develop an adequate plan based on their level of vulnerability. Our Nonprofit & Human Services team can help. Learn more by contacting me at sritter@mercadien.com or 609-689-9700.

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