Understanding cost per dollar raised

publication date: Feb 6, 2019
author/source: Dr. William Hallett

Cost per dollar raised (Cost/$raised) is one of the most misunderstood concepts in fundraising. Charities (especially those with revenues under $1million) with cost/$raised over 35% might be mis-managed but they also could be very well managed.

For important small and/or neighbourhood charities that cannot attract highly connected volunteers their fundraising programs are usually only comprised of methods such as special events and direct mail. If this is the case, there is no way they can realize CRA’s optimal standard of under 35%!

The Canada Revenue Agency (CRA) has created cost ratios as their indicators of how a charity’s fundraising program is managed.

a. Ratio of costs to revenue over a fiscal period – under 35%

This ratio is unlikely to generate questions or concerns by the CRA.

b. Ratio of costs to revenue over fa fiscal period – 35% and above

The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is the CRA will be concerned the charity is engaged in fundraising that is not acceptable, requiring a more detailed assessment of expenditures.

c. Ratio of costs to revenue over fiscal period – above 70%

This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is not engaged in unacceptable fundraising.

Given these ratios charities should be concerned about their fundraising costs. These ratios I believe mislead the public, because many people believe if charities do not comply with a cost ratio under 35% they are poorly managed.

A few years back the Association of Fundraising Professionals (AFP) in partnership with the Center on Philanthropy headquartered at Indiana-Purdue University in Indianapolis, expended many resources on a Study to determine fundraising cost guidelines that would be researched based and beneficial to charities. The conclusion was that so many charities determined the cost/$raised so differently that they concluded research-based guidelines could not be determined.

Given this finding, I believe the standards outlined by Jim Greenfield are sufficient. Although these standards are not backed up by research data, most fundraisers use them as benchmarks because nothing else is available. In my experience they make sense.

The following Program and Method Costs Per Dollar Raised Guidelines are based on Greenfield’s work and my experience.

Overall Fundraising Program Costs

The generally accepted “Gold Standard” for a well developed program including Annual Giving, Major Gifts, Planned Giving and Campaigns is: $0.20 per $1.00 raised. However, I advocate that it should be a range between $0.20-$0.25 because in my experience some of the best managed charities have even higher overall costs. But a cost ratio of $0.25 or less I believe is a benchmark that most can and should attain.

Cost Per Method (see article 2 for an outline of the various methods)

A. Personal Visits: $0.08 to $0.15 per dollar raised

a. Annual, Major and Campaign Gift Costs: $0.08-$0.15 per $1.00 raised.

B. Planned Giving/Gift Planning Costs: $0.03-$0.06 per dollar raised.

C. Direct Response Methods:

a. Donor Acquisition using Face-to-Face, Door-to-Door, Direct Mail, Telemarketing, Mail/Phone: $1.00-$1.50 per $1.00 raised.

b. Acquisition costs using email, social media and online advertising, in my view are not as effective as those in (a) but should cost a lot less. See (F) below.

c. Renewal Costs: $0.40-$0.75 per $1.00 raised.

D. Special Events Costs

a. A well managed special event will usually cost $0.50 per $1.00 raised. However, depending on how many gifts-in-kind are given; for example a Country Club not charging green fees or an organization not charging rental fees costs can be lower.

b. Third Party Events: Depending on the involvement of a charity, Third Party events can be implemented at no or very little costs: $0.00 to $0.08 per dollar raised

E. Written Grant and Proposal Costs: The estimate for these costs can be $0.20 per $1.00 raised.

a. Costs can be higher if outside consultants are used, rising to as much as $0.40 per $1.00 raised.

F. Social Media, Crowdfunding, Online Advertising, Endorsements, Gifts-In-Kind

These methods are relatively new, but depending on what is counted (for example cost of data, crowdfunding contract/fee costs, etc.) these costs should be low in my estimated view, i.e. < $0.08 per $1.00 raised.

In conclusion, charities should have a very diversified fundraising program to comply with the ratios set out by the CRA. However, depending on the size and scope of a charity their fundraising program methods may be quite limited, thereby exceeding the under 35% ratio of the CRA.

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