We’ve been writing about “cost of fundraising” as a deeply flawed metric since we launched The Agitator in 2013. Thirteen years. The argument hasn’t gotten more complicated and too many boards haven’t gotten smarter.

Let’s try one more time.

The Metric That Rewards Shrinking

Cost of fundraising — expressed as cents raised per dollar spent, or as a percentage of revenue — sounds like prudent stewardship. It sounds like accountability. It is, in fact, a precision instrument for ensuring your organization raises less money every year and congratulates itself for doing so.

Here’s the arithmetic that boards refuse to understand.

Nonprofit A spends 20% of revenue on fundraising. Nonprofit B spends 40%. Some watchdog or state regulator grades A superior. A’s board rewards its fundraising director. A consultant recommends A as the model.

Now the numbers: Nonprofit A ran a campaign costing $400,000. Five-to-one return. Net: $1.6 million for mission.

Nonprofit B spent $2 million on a similar campaign. Two-and-a-half-to-one return. Net: $3 million for mission.

Nonprofit B –with it’s 40% cost-of-fundraising nearly doubled the money available for the people it serves. Its board fired the fundraising director.

This is not a hypothetical. Versions of this happen everywhere, every year, in organizations governed by people who believe efficiency and effectiveness are the same thing. They are not. In fact, they’re often opposites.

They Don’t Know Their Failure Rate. That’s the Problem.

Here’s what makes the cost of fundraising obsession genuinely dangerous rather than merely stupid: it creates the illusion of rigor while hiding future damage caused by sticking with the status quo.

Boards reject new approaches because they “cost more.” They’ve never calculated what their existing approach costs — really costs — when measured against what it fails to produce.

Take acquisition for example: fewer than one in six new acquisition packages beats the control. That’s the sector’s actual failure rate on the techniques boards have been rubber-stamping for decades. Not 10%. Not 20%. 80+% failure — expensive, time-consuming failure — executed with the full confidence of organizations that won’t try telemarketing for sustainers because it “costs more” or “upsets donors at dinner.”

The failure rate of telemarketing for sustainer acquisition? Roughly one-fifth of direct mail’s failure rate. Boards don’t know that because they’ve never been shown that. They’ve been shown a cost-per-piece number or an overall cost to raise a dollar and told to feel good about it.

As Jay Love put it to me: “Fear is a terribly tough incumbent to beat.” He was talking about innovation. He was also, without knowing it, writing the epitaph for a thousand organizations that chose the comfort of a familiar metric over the discomfort of a real one.

The Scorecard Is Running Your Strategy. Badly.

This point deserves saying plainly and over and over again: cost-to-raise-a-dollar is not a neutral measurement tool. It is a strategy engine. And the strategy it engines is decline.

When you reward only what’s attributable this month or this year — conversion rate, cost-per-acquisition, cost to raise a dollar — you systematically defund everything that creates next year’s donors. For example, brand building and the unglamorous work of welcoming donors properly, thanking them meaningfully, treating them as investors in a mission rather than transactions in a pipeline.

The starvation loop looks like this: the scorecard demands efficiency. Efficiency demands cutting investment. Cutting investment weakens the donor pipeline. A weakened pipeline makes next year’s numbers worse. Worse numbers trigger more demands for efficiency. Repeat until the organization is raising the same money from an ever-shrinking base, hitting its cost of fundraising targets, and dying on the installment plan.

This is not theory. Donor counts are falling across the sector because retention rates are abysmal and there’s too much fishing for acquisition in the same stagnant, overfished ponds.   Small organizations almost never get big. The “best practices” metrics boards have been using were designed for a generation that preceded the Baby Boomers. That’s right; the fundraising models still widely used today were built for and by a generation that’s largely gone.

The Watchdogs and the Profession Are Coming Around. The Boards Haven’t Noticed.

Credit where it’s due: the major accreditation and watchdog organizations have been quietly backing away from cost-of-fundraising as a primary metric. The BBB Wise Giving Alliance shifted toward a broader framework — transparency, governance, mission clarity — because even the watchdog community eventually recognized that cost ratios mislead more than they illuminate. The overhead myth has been named, argued against, and largely debunked in the professional literature.

The boards haven’t gotten the memo. Or they’ve gotten it and found it inconvenient.

Because here’s what the cost-of-fundraising metric actually provides, beyond bad strategy: cover. A number boards can point to, defend, and enforce without having to understand anything about how fundraising actually works. Governance-by-ignorance dressed up as fiscal responsibility.

What a Real North Star Looks Like

Net revenue. Lifetime value. Donor growth — real donor growth, measured over rolling 365-day periods, not campaign-by-campaign snapshots. These are the metrics that tell you whether your organization is growing or contracting. Whether, as Kevin puts it,  you’re planting or only harvesting. Whether the decisions that looked smart this quarter are quietly bankrupting next year or the next.

The question a board should ask is not “how much did it cost to raise this dollar? “ The questions should be:  Did this change anything? Did we acquire donors who will stay? Did we invest in the conditions that make giving more likely next year? Did we grow, or did we just efficiently extract from a base that is smaller than it was?

If your cost of fundraising ratio improved while your donor count declined, you didn’t have a good year. You had a slow bleed dressed in a clean shirt to please a board that doesn’t understand basic arithmetic

Thirteen years of making this argument. The arithmetic hasn’t changed and the damage hasn’t stopped.

Maybe this time.

Roger