By now you’ve shown your CEO, CFO and Board the famous Dan Pallotta TED presentation — The way we think about charity is dead wrong.

If you haven’t, you deserve a scolding. Here it is, and here’s why you should view it. I’m glad to see it has over 1 million views now … but that means some Agitator readers still haven’t seen it.

OK, maybe watching provocative, inspiring videos about fundraising just isn’t your thing. Zzzzzzzzzzzzz.

If that’s the case, you should probably also skip this recent post — The ‘less cost is best’ fallacy — from fundraiser Ken Burnett.

It’s in the same boring vein of the Pallotta talk (i.e., how you’re under-cutting your fundraising success by not spending enough), dealing specifically with why you should not obsess on minimizing cost ratios.

Ken gives six reasons why adhering to rigid cost ratios is wrong-headed, abbreviated a bit here …

The question is wrong.
What is a good profit percentage for a business? …very few businesses work on a ratio better than two to one. Those coming even close to that would be laughing all the way to their bank. Businesses, of course, grab any profits they can, maximising the net while exploiting sensible opportunities, minimising costs and prudently managing appropriate risks. So should we.

The arbitrary fixed ratio model isn’t found anywhere else.
It’s hard to imagine any business that could afford to say, ‘We won’t pursue any business activity unless it produces a return of 3:1.’ Even if they could, they wouldn’t, because businesses like to maximise net income.

It discourages risk and innovation.
Obviously, if overall costs have to fit inside a fixed ratio no one is going to try anything new or unproved. As all fundraising declines over time, this is a recipe for disaster.

It’s staggeringly unsophisticated.
Being guided by an average ratio is like judging a person’s … ability to give to our appeal by the loose change they have in their pockets.

The public believes spending on admin is wrong.
Why have we allowed such a fallacy? Obviously, if a charity isn’t properly administered, any donations it receives will most likely be wasted.

The public still views fundraising as a cost, not an investment. Yet good fundraising averagely generates a return that quickly outstrips market investments, by far. Why are the public (and trustee boards) happy to see charity reserves invested in stocks and shares that averagely return three per cent or thereabouts, while not investing sufficiently in fundraising, which with almost cast-iron certainty will bring in returns ten times better? Often much more. And secure their organisation’s future by building a substantial donor base. Many donors balk at an average fundraising cost as high as one-third of the money raised. Yet I don’t know any donor who, when told, ‘Give me £1.00 and I’ll quickly turn it into £3.00 for the cause,’ wouldn’t say, ‘Go for it!’

Ken’s last point is the huge perception obstacle to overcome with the public and with Boards. It’s the main issue Pallotta addresses in his TED talk.

As usual with Ken, you should really read his entire post.

Then go re-thing your acquisition strategy and budgeting.

Tom