By Holly Hall
Sixteen charities in the San Antonio Nonprofit Council recently paid $3,300 for a short video making an unusual pitch: They want to spend more on administrative costs. "It helps when we have the people and the supplies we need to carry out the program," says one woman from a literacy group. "It’s not overhead, it’s the cost of the program."
The video is part of a campaign by the council to get board members, grant makers, and donors to stop insisting on low fundraising and administrative costs in the charities they support. More videos, a PowerPoint presentation for boards, and a handout that charity executives can use in discussionswith trustees and donors are all part of the effort.
"We’re not stopping," says Scott McAninch, the council’s executive director.
The San Antonio group is one of a growing number of charities, fundraisers, consultants, and even watchdog organizations that are pushing back against demands that charities hold down their administrative costs.
To persuade board members and other leaders to spend more on fundraising, experts say that charity leaders should:
Show the potential for strong returns on investments. Trustees, donors, and nonprofit executives focused on low overhead can sometimes be swayed with a convincing mathematical argument, fundraising experts say. Jeff Comfort, vice president for principal gifts at Oregon State University, suggests concentrating on the return from new investments in fundraising.
For example, if a nonprofit planned to spend $200,000 to raise half a million dollars, the fundraising cost would be 40 percent. If a good case could be made that spending $250,000 would likely raise $700,000, a smart fundraiser might be able allay concerns about the increase in overhead expense by pointing to the reduction in the overhead ratio to 36 percent—and the fatter bottom line.
At Johns Hopkins Medicine, Steven Rum, vice president for development, says he has to make his institution’s leaders understand that spending $100,000 to hire a new major gift officer will net no fundraising returns in the first year. But by the third or fourth year on the job, he says, the fundraiser should be raising $1-million annually, netting somewhere between eight and nine times what the organization is paying that person, assuming that he or she receives pay increases for good performance.
Work with financial officers. When fundraisers and financial officers work together, they can sometimes present formidable arguments by putting overhead expenses in their proper context.
Enlisting the help of her chief financial officer, Karen Haren, the former chief executive of a food bank in Kansas City, Mo., was able to assign fundraising and overhead costs to each of the charity’s four programs.
One program helped needy public- school students by sending them home on weekends with backpacks full of food. The financial officer determined that food for the program took up a third of the space in the group’s warehouse, so one-third of the monthly warehouse expenses were allocated for the backpack program. When donors said they just wanted to pay for the backpacks and nothing more, Ms. Haren says, they had an answer.
"We talked about all-in costs," she says. "I had to educate a donor that to deliver a backpack, I needed lights in the warehouse and a driver." Charities she says, "haven’t been good about really explaining that to donors. We have set up the expectation that someone can just pay program costs and not pay any overhead."
Ronald Schiller, author of Beyond Fundraising, a book about how to navigate the growing complexities of the top fundraiser’s job, says that chief development officers must understand how contributions affect the chief financial officer and the organization’s overall revenue. "Development officers who don’t understand that don’t get very far," Mr. Schiller says.
For example, a chief development officer who wants more staff to help raise cash for an expensive new building should understand that the CFO may be worried less about fundraising expenses than about big operational costs that would continue long after the capital campaign closes. In such a situation, a smart development officer might win a new ally by showing the CFO a smart fundraising plan to deal with those operating costs in the years ahead.
Build early wins. Seasoned fundraisers stress the importance of quick successes after persuading nonprofits to expand fundraising operations. Fundraiser Jim Thompson led a 10-year campaign to raise more than $1-billion at the University of Rochester with a plan that called for nearly tripling annual fundraising costs to more than $40-million. He says the drive focused on generating some immediate returns by enhancing Rochester’s annual fund.
First, fundraisers asked alumni and other supporters to commit to an annual gift of at least $1,500 for five years in a row. Second, they improved the types of recognition and event invitations donors got in return. Not only did that approach give Mr. Thompson’s board the assurance of a multiyear income stream, but annual contributions doubled after the first five years and went on to nearly triple, from $4.9-million to $14.5-million last year.
At the same time, while producing results in the first year is important, "you have to get people to stop thinking of annual budget cycles," says Mr. Thompson. "It is more a campaign that takes years."
Hire an outside expert. Mike Morsberger, formerly a top fundraiser at George Washington University, says that after working at four institutions of higher education, he’s faced many trustees and others who want to slash fundraising costs. His solution: Bring in a consultant to show why that course of action could backfire.
Mr. Morsberger says that as a top fundraiser at Duke University from 2006 to 2010, he was given a mandate to greatly increase donations. Soon after he started, he says, trustees and others started using terms like "cost to raise a dollar" and speculating that the university could raise 20 percent more without increasing its fundraising costs. So Mr. Morsberger hired a well-known fundraising consulting firm to do a development audit. That led to a more realistic plan to spend 6 percent more on fundraising, with an eventual increase of 15 percent more in gifts.
"Outside counsel can bring expertise and provide objective facts when they think I might have a self-interest," he explains.
Take advantage of benchmarking. Mark Larkin, vice president for philanthropy at CentraCare Health Foundation in St. Cloud, Minn., says he persuaded his board to invest more money in fundraising after participating in two benchmarking studies by the Association for Healthcare Philanthropy. By providing detailed information on how much his foundation spends and raises and comparing it to the figures of other institutions, Mr. Larkin convinced his board that more development officers were needed. His staff has grown from a handful of people to 16. Deducting fundraising and administrative expenses, net contributions have grown from $1.4-million in 2001 to $4.4-million in the 2014 fiscal year, which ended in June.
The Association of Healthcare Philanthropy charges for its detailed benchmarking reports ($495 for members and $795 for non-members). When organizations can’t or don’t want to pay for that information, association officials say they can still benefit by starting their own benchmarking group for five to 10 peer organizations that agree to share basic metrics like return on investment in fundraising, cost to raise a dollar, and cash versus pledges.
Understand the difference between efficiency and effectiveness. Betsy Chapin Taylor, a fundraising consultant to hospitals and medical centers, says her clients, in their push to keep costs low, often sacrifice effectiveness, which she defines as what’s being achieved for their money, for efficiency. To help her clients understand the distinction between the two, Ms. Taylor relies on a football analogy.
Todd Berry, the head football coach at the University of Louisiana at Monroe, could be considered the most efficient coach because he is one of the lowest paid and therefore a cheaper hire, she says. Nick Saban, the University of Alabama’s lead football coach is among the highest paid and more expensive to recruit because he sends teams to national championships and has a better coaching record.
"Who do you want to put on a foam finger for and cheer for at the game?" says Ms. Taylor. "Saban, because he wins." Investment in fundraising, she adds, "needs to chase effectiveness rather than just efficiency."