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Developing a Nonprofit Fundraising Strategy that Optimizes Fundraising Performance

development planning financial management Dec 19, 2020

Every executive director, board member and fundraising professional I know wants to increase income for their nonprofit organization. The question they have is, “What nonprofit fundraising strategy will generate the most income?”

By increasing income, I mean increasing net income. High gross income means nothing if the net income is a loss. It doesn’t matter how much money you raise if your costs to raise it exceed your revenues. There are two factors involved in increasing net revenues: reducing costs and increasing income. Both are important.

Decreasing Fundraising Costs

The fastest and least inexpensive way to increase net income is to reduce costs. According to the Fundraising Effectiveness Project, the cost to raise $1 through grant writing is $0.20, including labor; $0.25 through corporate giving, including labor; and $0.25 through an existing individual donor. To acquire a new donor through direct mail costs and average of $1.25. The cost to raise $1 through a fundraising event is $0.50, not including labor. If your costs to raise $1 are higher than these averages, you may want to look at where you can reduce costs.

You may also want to look at your fundraising operational costs. Like your banking fees, credit card donation fees and donor management software costs. Then look at your general operational costs, like office supply and janitorial costs. You may want part of your fundraising strategy to be reducing your vendor costs.

An often-overlooked way of reducing fundraising costs is by improving your donor retention rate. According to the Fundraising Effectiveness Project, the average donor retention rate is 45%. That means that for every 100 donors a fundraiser recruits, they lose 65 of them. And if it costs over a dollar to realize every dollar gained, your heavy emphasis on donor recruitment is costing you more than you are realizing. Since it costs more to acquire new donors than retain, then a shift in strategy from a heavy emphasis on new donor acquisition to a heavy emphasis on donor retention may well be the least inexpensive way to improve fundraising performance. 

Optimizing Fundraising Performance

The usual nonprofit fundraising strategies are aimed at realizing donations through individual giving, foundation requests, corporate contributions and special events. What are the financial costs and benefits of implementing each nonprofit fundraising technique?

Considerations for Raising Money from Individuals

According to Giving USA 2019, individuals make up the biggest piece of the fundraising pie, at 77%. And they do it through generally smaller size donations, averaging $25-$250. The return on investment to raise $1 through an existing donor is relatively low, although acquisition costs may result in a loss. Individual donors can be recruited and asked to give through your website, email campaign, direct mail campaign, social media posts or face-to-face.

Your upfront costs include a donor management software and a way to accept credit cards. Before you start, you will want a donor recruitment plan, a donor retention plan and training for your askers. Depending on how many ways to you want to ask individuals, you may also need to optimize your website, invest in an email campaign system and integrate fundraising messages into agency communications. After implementing an individual donation fundraising program, you will need someone to research donors, record the research, recruit the donors, implement the donor communication vehicles, track the response to the communications, answer questions when potential donors have questions, record donor interactions, receive donations, record the donations,  write thank you letters, refund donations when there is a problem and report back to the donor the use of the donation.

Considerations for Raising Money through Foundations

Foundation make up 18% of the charitable giving pie. They do, however, generally give larger donations, somewhere between $2,500-$15,000. The return on investment is the highest of all the giving groups. The way to ask for money from foundations is by submitting grant proposals.

To get started, you will need a foundation database search tool and a recordkeeping system. You may also need audited financial statements. You will need someone to research potential foundations, record the research, make a grants calendar, write the grant, answer questions if the funder has any questions about the proposal, monitor and record funder responses, record donations and their purpose, write thank you letters, monitor agency performance against grant promises and write grant reports.

Considerations for Raising Money through Corporations

Corporate contributions make up 5% of charitable giving pie. Average donations can run anywhere from $100-$5,000. Return on investment is relatively high. Corporations give through employee matching gift programs, employee volunteer programs, in-kind or non-monetary donations, sponsorships and corporate foundations.

Before you approach a corporate giving partner, you will need donor management software. You may also need your agency’s financial statements. You will want to create sponsorship templates, a donor recruitment plan, and a donor retention plan. For ongoing efforts, you will need someone to research potential companies, record the research, reach out to the contact, follow up with the contact, make the ask, monitor and record responses, record donations and write thank you letters. If giving is through a corporate foundation, you will need some to write grant proposals, monitor agency performance against grant promises and author grant reports.

Considerations for Raising Money through Fundraising Events

Fundraising events raise money from a combination of individual and corporate giving. Income is realized through tickets sales, event sponsorships, raffles, auctions and ad journals. The amount of the donation usually varies from $100 to $10,000. Gross revenues are generally high. However, it costs $0.50 on the dollar to implement them, not including labor. And first-time individual event donors are unlikely to convert to repeat donors.

To implement a fundraising event you will need a donor management software and a way to accept credit cards. Other costs may include raffle tickets, auction items, and bidding materials. The labor involved is huge. You will need someone to develop sponsorship templates, garner auction items, track auction donations, monitor bidding, deal with dissatisfied bidders, research potential corporate sponsors, record the research, reach out to the contact, follow up with the contact, make the ask. monitor and record responses, record donations and their purpose, and write thank you letters. If a foundation is contributing to the event, someone will need to monitor agency performance against grant promises and write grant reports. Someone will also needs to plan the event, negotiate with the venue, pick the menu, design the invitations, make sure you have enough postage, send out the invitations, advertise the event, recruit ticket buyers, implement the communication vehicles, track individual and sponsorship tickets, provide answers when potential event goers have questions, record donor interactions, receive the donations, and refund donations is there’s a problem. Depending on what type of event it is, someone will need to coordinate the seating chart, golf foursomes or walk teams. You may also want someone to coordinate with the media.

In Conclusion

What overall nonprofit fundraising strategy will make you the most money? The first thing to do is look at your reducing your fundraising costs, the most immediate and least expensive way to increase net income. Then look at your donor retention rate and try to improve it. Also consider efforts to increase your average contribution per donor. Look at which fundraising techniques will bring you the highest donation amounts. Also look at which ones will bring you the highest number of donations. In addition, consider upfront and ongoing costs. How can you leverage existing agency activities to reduce costs? And lastly, look at recruiting new donors, the most expensive thing you can do. Look at your financial metrics. Analyze your results. Weight your costs and benefits. Build on your strengths.

I want to move my fundraising to the next level