Calculating the Fundraising Cost Per Dollar Ratio
You work hard on fundraising. And you want your strategies to be as effective as possible to keep your organization healthy and growing. That’s where fundraising metrics come in.
Once you become familiar with a few concepts, you’ll be able to find valuable insights in your fundraising data. In this post you’ll gain critical information for improving your fundraising by reviewing your results, tracking key fundraising metrics, and comparing your performance to benchmarks. It may sound like a lot, but don’t worry: it doesn’t have to be complicated.
Today we are going to look at how to calculate and use Cost per Dollar Raised (CDR), also sometimes called the Fundraising Ratio. The CDR is a key performance indicator for nonprofits to help them understand the relationship between the dollars they invest in fundraising activities and the funds those bring in to support the mission.
Understanding Fundraising Benchmarks
First a brief look at some terms we are using here.
Metrics, in fundraising, are measurements drawn from your data that can be used to evaluate important factors of your overall fundraising program, or a specific fundraising activity, like a campaign. Key Performance Indicators (often shortened to KPI) are, as the name implies, the most important metrics essential to evaluating your progress towards your fundraising goals.
Benchmarks are standards or references against which you can compare your performance on various metrics. You might compare your results on metrics year-over-year in your own organization, to another organization, or to an average from across the nonprofit industry.
So let’s get to how to calculate your fundraising ratio. This KPI is designed to answer a basic question: what value are you getting for the money you spend on fundraising?
You’ve probably heard the phrase “it takes money to make money.” While this comes out of the business world, it applies to nonprofit fundraising too. Yet too many nonprofit organizations fail to critically assess the costs versus benefits of their fundraising program, instead sticking with what appeals to board and staff, or what they’ve always done.
What is the Cost Per Dollar Ratio?
Cost to Raise a Dollar (CRD) is a common and very useful fundraising metric. It is a simple calculation of Cost ÷ Funds Raised. It can be calculated for specific campaigns or events, as well as your overall fundraising program.
Note that the costs used in this calculation should include everything needed to conduct a campaign (or your fundraising for the year) – to include an estimate of staff time expenses, in addition to costs like social media advertising, printing, and event costs.
So, for example, if your organization spent $7,000 in fundraising expenses for your 10th anniversary campaign, and you raised $20,000, your cost per dollar raised was 7,000 ÷ 20,000 = .35. In other words, you spent 35 cents for every dollar raised.
Or, if last year you spent $45,000 on your full fundraising program, and raised a total of $173,000, then your cost per dollar raised was 45,000 ÷ 172,000 = .26. In other words, you spent 26 cents for every dollar raised during the year.
Making Your Cost Per Dollar Ratio Actionable
As we mentioned above, you can track your CRD from year to year. You might set a goal to reduce it to a certain level, then brainstorm with your colleagues ways to do that by reducing expenses and/or increasing gifts. And this is where benchmarks come in. You might assess your CRD against a similar organization, for instance if you are a chapter or affiliate of a larger entity. Or you can look at your nonprofit’s performance against an average for the nonprofit industry as a whole. In this case, the industry benchmark varies. $1.00 to $1.60 is very acceptable for a direct mail campaign geared at finding new donors, while $0.20 is considered an average acceptable CRD for an entire fundraising program.
Aside from providing valuable internal information for your organization, Charity watchdog groups like Guidestar by Candid, Charity Navigator, and Great Nonprofits use this metric in their ratings of nonprofits, which is another reason to keep an eye on it.
But remember that tracking metrics and benchmarks should be a tool to assess and improve a well-thought-out fundraising strategy, not a goal in itself.
For instance, if building your donor base is a high-priority strategy for your organization right now, you may choose to spend more to bring in new donors – many of whom, after all, will give in future years with good stewardship by your organization. In this situation, a higher CRD during a year or two focused on growing your donor base could be a sign of success! You’d want to be sure you were also tracking and assessing the number of new donors, since that would also be a key performance indicator for your priority goal.
Gaining a Better Understanding of Your Nonprofit’s Success
Now you have a new tool – Cost per Dollar Raised – to help improve your fundraising. It can provide a valuable snapshot into the health of your organization in relation to your unique strategies and goals. Measure your progress regularly. Compare it to appropriate benchmarks. Set goals. If you are moving in the right direction, celebrate, then analyze what’s working so you can expand on it. If not, explore why, make changes to correct your course, and keep on growing.
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Published: March 10, 2022