Monday, March 19, 2012

The Two Faces of Fundraising Events: Part 2 - A Hydra Head?

In The Two Faces of Fundraising Events: Part 1, I noted that fundraising events are very popular with many nonprofits. The big charities often make a boatload of money on their "walks" and other "thons". Most staff and volunteers "get" events. They know the purpose is to raise money for the cause. Attendees understand this too and don't object to paying their share. They also feel they receive something tangible in return - a fun time, a chance to rub shoulders with community leaders and maybe even "the famous". Staff and leadership like events because they are often well covered by the media and goodness, they don't have to make a complicated "pitch and ask".

But is it the most effective fundraising vehicle?

Let's look at the potential investment numbers. Here's where the hydra-headed aspect of events raises its ugly...well, you know.

Let's suppose a nonprofit puts on an annual black-tie gala with music, upper tier catering, and an auction. Planning starts a year in advance. At least one staff member spends half of his/her time working on the event. Board members are involved in touching their friends and contacts. The President and Director of Development have roles. The event goes off well and grosses $100,000. Super, huh? Maybe. (Thanks to Nell Edgington, President of Social Velocity for the following cost presumptions. They ran a superb series of blog articles on the cost of fundraising which can be found here .)

Let's suppose some direct expenses:

Venue, music, food, decorations, invitations: $50,000

Often, this is how many nonprofits view their net profit from the event - $100,000 in gross revenue minus $50,000 direct expenses = $50,000 net profit.

But we need to consider the total costs of running this gala and how that compares to other fundraising opportunities. It is imperative to look at the indirect expenses such as:

Cost of staff members to prepare for and manage the event (hours worked by staff members times salary + benefits). 

Staff Event Coordinator's time: $15,000
President's time: $4,000
Development Director's time: $5,000

And let's also figure Board Member time utilizing the standard value of volunteer hours ($20.25): $3,000

Total indirect costs are $27,000
Add direct costs of $50,000
Total indirect and direct costs = $77,000

Our new net revenue is $100,000 - $77,000 = $23,000

The nonprofit made $23,000. Still seems like a reasonable number doesn't it? Especially, since so many new people attended the gala, and the mayor was there -- and it was mentioned on the 6 o'clock news.

But let's look at the cost to raise each of those 23,000 dollars. 

Cost to raise $1.00 = Direct + Indirect costs/ Net Revenue

$77,000/$23,000 = $3.35 cost to raise $1.00

(Also, how many of those new people are really connected to your cause? Is the mayor a prospect? Will anyone remember the 6 o'clock news?)

Now let's suppose you have a salaried staff person working on major gifts prospects. This person's salary is $65,000 per year plus benefits. Indirect costs might include leadership or Board members attending donor visits for a total of $100,000. Their activities result in $500,000 worth of donations in a year. The net revenue figures work out like this:

$500,000 - $100,000 = $400,000

... and the cost per dollar raised ($100,000/$400,000) would be $0.25.

Not only that, but hopefully you have been soliciting and stewarding warm prospects, not a random group of event attendees who may or may not be smitten by your mission.

Doing the math is illuminating.

Does that mean events are a waste of time? No. But it does depend on how you view the investment. How much staff time do you want devoted to this sort of return? Can it be spent more effectively elsewhere? Maybe you can afford to have staff devoted to events and major gift prospecting. Or, maybe you look at the value of events being more resident in their friendraising, cultivation, and stewardship value?

Do the math -- and see what makes sense for you.

1 comment:

  1. As a teacher, I find this a great argument for an emphasis on developing both critical thinking skills and math and cognitive developmental skills in our nation's student population.

    I'm not sure society sees the value in it. The need for "forward thinking" should be part of what we expect in our workforce. Thanks for this through "walk-through" on this kind of process.