Fundraising Efficiency vs Productivity
Which should be more important to your fundraising … efficiency or productivity?
If you said productivity … gold star!
If you said efficiency (sometimes expressed as ROI) … go to the back of the class!
Or, more productively, read this piece by Tom Hurley at DMW Direct.
As Tom sees it, the holy grail of fundraising is maximizing net revenue, and sometimes you need to sacrifice a spiffy ROI to do so.
Here’s a simple real world choice he poses: Would you rather spend $10,000 to raise $50,000, for a whopping ROI of 400%, or spend $20,000 in two waves to raise $75,000, with only a 275% return?
Efficiency or productivity?
As he puts it: “Net revenue pays for programs. An arbitrary efficiency metric, like ROI, doesn’t pay for anything.”
OK, you might protest that his approach is fine, but only IF you have that extra $10,000 to invest in the first place. And, of course, are comfortable (in his example) that you can accurately project the response to wave 2.
Tom’s answer to having the additional investment funds readily available is a Revolving Opportunity Fund. Negotiate the ‘principal’ amount with ‘the boss’ during your normal budgeting, with agreed business rules on use so you don’t have to beg for every opportunity as it arises. Then watch for the right opportunities to step up your program to achieve more net revenue … e.g., expanding the segments who receive a special appeal that performs really well. The key is to always return the principal first.
He even suggests the kinds of projects that might be most suitable to fund through your ROF.
I think you’ll find Tom’s piece quite helpful, so he’s getting an Agitator raise.
Tom
P.S. Did you miss our related post last week on The ‘Less Cost Is Best’ Fallacy?
P.P.S. Miss our Monday post? Roger’s back. Grumpy … but at least he’s back … and posting tomorrow.
2 responses to “Fundraising Efficiency vs Productivity”
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A very good point well made by Tom. The constant battles fundraisers have with senior management and boards (and sometimes less informed fundraisers) about this issue are a waste of everyone’s time.
Often the obsession around ROI is due to people thinking that this is what donors want. I wrote a piece about that a while ago, with a great little exercise to do with senior management to help them realise it is not so important.
http://seantriner.blogspot.com.au/2008/10/cost-effectiveness-could-be-end-of-your.html
Sean
Spending $10,000 to raise $50,000 when you have $20,000 available doesn’t give you an ROI of 400%. It gives you and ROI of 200%, which is lower than the 275% from plan B.
If you have $20,000 and you spend $10,000 to raise $50,000, then your other $10,000 is sitting idle. It’s effectively earning an ROI of 0%. You start with $20k and you end with $60k (the $50 you made plus the $10 you never spent). That’s 200% ROI.
At least in this example, the problem isn’t so much with using ROI, it’s with using ROI incorrectly. A correct analysis would have led to the correct decision in the first place: spend all $20k and get back $75k. That’s the best possible use for $20k. Spending half and letting the other half gather moss is seldom the best possible use of your funds.