Understanding your fundraising cost structure is important.  Very important.  It lets you know how much you can invest to acquire a donor, and what you can spend to cultivate that donor over time.

Case in point . . . I had lunch with a good friend and client last week, and she shared something that about knocked me off my chair!

A former colleague of hers who ran their organization’s annual giving program was apparently singularly focused on income.  Because income was the metric by which the success or failure of his program was measured.

As long as the income increased year-over-year, he was good.  Or so he thought.

The problem?

In 2009, he ran a campaign that raised $30,000.  Not bad for a single effort to a mid-sized donor base.  Since this was an increase in income over the prior year, this campaign was considered a success! 

However, that campaign cost his organization $45,000 to run.  They spent $1.50 for every $1 the campaign generated.  And this was NOT an acquisition campaign – these were current donors they were targeting (in case you weren’t sure, your existing donor fundraising efforts should ALWAYS generate net revenue!).  But remember, income was the only metric being tracked – so even though they were net negative on the campaign, it was considered a success become the income had increased compared to the prior year.

In 2010 they decided to focus not just on topline income, but on cost to raise a dollar as well.  They made some modifications to the campaign, and managed the budget much more closely.  They spent only $3,500 in 2010, and still were able to raise $30,000 from this same audience.  That means they only spent $0.12 for every $1 generated.  That is a MUCH better return on investment!

Which scenario would you prefer? 😉