Are You Spending
Enough on Fundraising

The Nonprofit Starvation Cycle,” recently published by the Bridgespan Group in the Stanford Innovation Review, the authors report that many nonprofits underfund overhead costs like fundraising and also underreport them on tax forms. This perpetuates donors’ unrealistic expectations about the costs of carrying out the organization’s mission.

But how do you know if you are spending enough on fundraising?

The American Institute of Philanthropy recommends spending $35 or less to raise $100 on related income. Related income is the money raised directly through fundraising and does not take into account investment income, fees or other income.

Meanwhile, Charity Navigator gives its highest ratings to charities that spend 10%-15% on fundraising. It should be noted, however, that Charity Navigator only ranks organizations with budgets of $500,000 or more. Start-up organizations often have higher fundraising expenses, especially if they are doing direct mail.

What should you include in fundraising expenses?

You should discuss your fundraising expenses with your accountant but, at a minimum, you should include:

• Direct mail expenses attributable to fundraising. Many nonprofits do a linear count of their direct mail letters and allocate costs to program, fundraising or general and administrative, as appropriate. For example, if only 25 percent of the letter mentions requests for contributions, then only 25 percent of the expense for printing, production, postage, etc. should be allocated to fundraising.
• Annual state solicitation filing costs. You must register in states where you raise funds. The National Association of State Charity Officials provides links to the various state government offices that oversee these regulations.
• Costs for personnel doing fundraising. Determine who is involved in fundraising and the percentage of time that they devote to it. Then allocate salaries, benefits, office space, utilities, etc. to fundraising expense based on these percentages.
• Consultants. Include the costs of consultants assisting with fundraising. Allocate some of the costs to program or general and administrative expense if the consultant assists with other activities such as nonprofit management.

By calculating your fundraising efficiency—or the money you spend to raise funds—you will have a better understanding if you are investing adequately in the necessary work of raising money.