Fundraising is a vital part of a successful nonprofit organization, but nonprofit leaders need to make sure they are not over allocating costs to fundraising. After all, nonprofit organizations exist to achieve their mission not to raise money.

The increase in transparency and the availability of information has made it increasingly important for organizations to have a grip on their financial statements in order to be more attractive to potential donors.

What is Fundraising Efficiency?

Fundraising efficiency is the amount an organization spends to raise $1, and when it comes to this—the less spent, the better. This is calculated by taking the charity's average fundraising expenses and average contributions over its three most recent fiscal years.

The BBB Standards for Charity Accountability recommends that and organization “spend no more than 35% of related contributions on fundraising.

How is this reported on financial statements?

Contribution income is sometimes included in “special events”, “Sponsorships”, “foundation support” and even “grants” in the financial statements. If you are disclosing your fundraising efficiency in your financial statement footnotes it is very important to properly identify all contribution revenue to prevent confusion and the possibility of your efficiency ratio being calculated incorrectly.

What factors affect the organization’s fundraising efficiency?

There are several factors that will affect the overall fundraising efficiency, these include:

• How new is your fundraising campaign? Studies have shown that fundraising costs will fluctuate in the first two or three years of a new campaign, typically starting higher and getting lower and lower as the years go on.
• How old is your organization? If your organization is just starting out, fundraising costs have to compete with startup costs, and you likely do not have a wide range of donor participation. You will be spending/investing a lot more than you’ll be getting back during the “startup years”.
• How big is your organization? If your organization is large (annual gross receipts of $30 million or more), it will be easier for you to improve your expense to revenue ratio because you can more easily realize economies of scale.
• What industry is your organization in? Studies have shown that universities, museums, and more prestigious organizations have more efficient and established fundraising tactics than other nonprofits because they are able to secure a few larger gifts rather than several costly smaller gifts.

If you find that your fundraising efficiency is not up to par, you might want to consider a different fundraising approach. Is there another organization working towards the same mission that you could team up with to achieve a greater returns on your fundraising investments?

Contact any member of our Not-for-Profit Services Team for more information on the best fundraising practices for your organization.