I have no idea how much traction the CNN story on the New York Attorney General’s settlement will get. Nor whether it will trigger any, many or no donor inquiries to your organization or your clients.

Nonetheless, good Boy Scout that Tom is, I’ve adopted his motto:  “Be Prepared.”

So, here’s some Agitator advice on dealing with the question of fundraising costs and ethics.

• First of all, don’t be one bit defensive. Most fundraising programs are modern alchemy machines turning lead into gold. For every $1 invested they yield at least $5 and sometimes much more in return.

• Don’t get trapped in the acquisition dialogue. Reporters, watchdogs and regulators don’t understand it, don’t want to understand it. So, don’t waste your time preaching to those who don’t listen.

• Be prepared — meaning, do some actual calculation — to show your donors how their funds are effectively and efficiently multiplied. This means you need to calculate their lifetime value and then brag about it.

• Remind the donor (and your board and CEO) that money spent for fundraising yields greater returns than any other investment. See Agitator’s The Investment Paradox, then thank them for the wise investment in your organization.

Tom Ahern puts it brilliantly: “My favorite anecdote on budgeting came from the University of Calgary. One president ago, the head of fundraising went into the budget meeting with the trustees, bounced a Looney [the Canadian 1 dollar coin] off the echoing wood conference table, and declared: ‘For every one of those you give my department, I’ll give you five back.’ Be brief, be brilliant, be gone.”

There are a number tools and content to help guide you.

Download and take a look at this beta version of the Direct Mail Nonprofit Federation’s “Dashboard”, which you can place on your website to reinforce transparency. If you want to get on board and use this dashboard, contact Senny Boone at the DMANF:  SBoone@the-dma.org

You should also be aware of the DMA Nonprofit Federation’s Principles and Best Practices for Accountability in Fundraising.

Most important. Please understand why knowing how to talk about fundraising costs is so important. For excellent advice on this, read and re-read Ken Burnett’s piece on fundraising costs.

One year ago at a DMANF conference in New York, with the issue of media and watchdog attention very much on folks’ minds, the issue of being prepared was thoroughly addressed. See this Agitator post.

Here’s a summary of the key points from that conference session on how to talk about fundraising costs and why you as a fundraiser need to be prepared.

• Why Bother? Who really cares about all this? Media, boards, and donors do, and so should fundraisers. Confidence in charities has not risen significantly since it hit bottom in 2003. As of 2008, 70% of Americans thought charities waste a ‘great deal’ or a ‘fair amount of money’. (Brookings Institution)
• Importance of Mission Statement. Effectiveness and efficiency of a charity is far broader than one metric like ‘cost of fundraising’. Be prepared to clearly and quickly articulate mission — who you are, why donors should support you.
• Terms. Understand the terms you use. ‘Cost ratios’ are the percentage an organization spends of its annual revenue on things like program or fundraising or management. ‘Overhead’ is the combination of fundraising costs and management costs — everything not considered ‘Program’.
• Time. Anything less than an annual metric is usually inaccurate because it normally counts all costs, but not all revenue. Better to use a longer time frame. For example, best to measure acquisition cost ratios over the lifetime of the donor.
• Take The Long View. Management and fundraising costs are normal and healthy part of doing business. Investing in good management and program expertise and good fundraising programs pays off big time in later years. In short, don’t use short-term campaign metrics; use long-term Lifetime Value and net revenue metrics.
• Diversification. Most nonprofits enjoy diversified sources of funding, each with its own ratios and LTV. Report aggregated results, particularly total money that goes to program. If costs exceed program expenses, be prepared to offer a rational, transparent explanation.
• ‘Wishin’ Don’t Make It So’. Most watchdogs, media and even nonprofit boards either don’t understand the realities of fundraising or wish they were different. Unfortunately, we all have to deal with the realities and avoid denial.
• Questions for Which You Should Prepare Answers. Whether the ‘cost’ and ‘overhead’ questions are incisive or idiotic, and whether they come from within or outside your nonprofit, you should have answers to:

• ”Why Not just raise money online?”
• “What happened to your fourth star on Charity Navigator?”
• “I think your overhead costs are too high.”
• “A disgruntled former employee claims your telemarketing partner got most of the money from a telefundraising campaign. You spent $50,000 on it, but it only brought in $40,000.”
• “How much of my money is really going to program?”

If you can’t answer questions like these you’re in danger.

• Be Prepared. Every fundraiser should think about questions like these and be prepared to answer enthusiastically and honestly. Refer to the DMANF, or AFP ethical guidelines you operate under … get proper media training … don’t hide from the press, watchdogs or donors … understand key long-term metrics like Lifetime Value so you can answer the cost question in its proper context. For example: “Each dollar we spend on bringing in a new donor produces an additional $3 for program. Far better than investing in the stock market or a far better return than we get from our endowment.”

What answers do you or would you give to the questions above? What additional questions and answers would you add to the list? And, most importantly, are you prepared when the phone rings and the reporter begins firing questions at you?

Roger