Charities Find It’s Wise to Spend More on Fund Raising

Fund raisers at the nation’s most-successful charities have borrowed basic concepts from the investing world to

raise millions, and sometimes billions, of dollars for their organizations annually.

Many fund raisers are focused on how much it costs their organizations to raise a dollar, and on keeping that cost as low as possible. But a growing number of institutions are concentrating on the return on investments made in their fund-raising operations, because that approach ultimately generates bigger and better gifts, says Bill McGinly, president of the Association of Healthcare Philanthropy. His organization represents many hospitals and medical centers on the Philanthropy 400, The Chronicle’s annual ranking of the charities that raise the most money from private sources.

Fund-raising costs are closely examined by charity watchdog groups and many donors, who want to see the most money possible applied to charitable services, says Mr. McGinly. “But this indicator of ‘success’ tends to lead to expenses being cut,” he says, sacrificing an organization’s ability to achieve the greatest possible fund-raising returns over the long term.

To help more hospitals focus on the returns they achieve by spending on fund raising, Mr. McGinly’s organization has come up with a uniform method for reporting contributions and other revenue, salaries and other fund-raising expenses, and other financial indicators like expected revenue from pledges.

The goal: providing a resource that the institutions can use to compare their fund-raising operations with those at like institutions. Over time, he says, that information will help them determine how many fund raisers they should hire and what other types of spending are most likely to increase donations.

Mr. McGinly says his association was contacted by the chief fund raiser at a New Jersey hospital that had six staff members who raised about $5-million per year. The man wanted to know if his hospital was raising an appropriate amount of money for its size. Mr. McGinly put him in touch with a similar-size hospital, also in New Jersey, that was raising more than $20-million annually.

The only difference between the two institutions: The more-successful hospital had three more fund raisers on its staff and concentrated more effort on soliciting big gifts from individuals. That convinced the inquirer to hire more staff members. Based on the other hospital’s record, he realized that even though his development costs would rise by as much as $400,000 or $500,000 annually for new fund raisers’ salaries, the money they would raise would far outweigh that expense within two to five years.

Many charities on the Philanthropy 400 have followed the hospital fund raiser’s example, hiring new development officers in 2004 and 2005 and taking a long view about building relationships with donors that will yield large gifts in years to come.

“To me, the greatest challenge is taking our time, building a long-term relationship with donors rather than trying to raise as much as we can in any given year,” says Bob Woods, chief development officer at the Trust for Public Land (No. 129), which raised $120-million last year. Since February 2004, he says, the trust has increased the size of its development staff from 54 to 80.

At the National Audubon Society (No. 274), John Byrne, the charity’s chief development officer, says last year’s 22-percent increase in contributions, to $56.4-million, can be attributed to spending on new software to better track contacts with donors and the hiring of 25 fund raisers, each of whom works in one of the charity’s field offices. Most of the new fund raisers were hired in 2003 and 2004.

Diversifying Income

Just as financial managers diversify stocks in an investment portfolio to minimize risk, many fund raisers have spent the past few years adding new techniques for seeking charitable contributions. That trend was only strengthened by the economic downturn in 2001, which slowed giving and convinced many fund raisers that business as usual was no longer good enough.

About three years ago, the American Society for the Prevention of Cruelty to Animals (No. 248) began running 30-minute infomercials on independent television channels about its animal-rescue and protection work, in an effort to encourage people to give once a month through electronic transfers.

Previously, the charity solicited such gifts through direct mail. Since February 2004, 65,000 donors have made gifts in response to the television broadcasts, contributing more than $8.5-million.

“Donors are looking for you on TV, print, and they expect to reach you through multiple channels,” says Jo Sullivan, senior vice president for development. “Smart fund raisers are looking for the next channel opportunity. Every time we have the opportunity to open up a new channel, we do.”

At Unicef (No. 21), “we’ve diversified our portfolio of income programs,” says Jeffrey Towers, senior vice president of development. The charity, he notes, had long relied heavily on selling holiday greeting cards and the well-known “Trick or Treat for Unicef.” A decade ago, those campaigns together raised about $35-million a year.

Today the organization is raising $146-million annually, not counting donated products, through direct-mail solicitations, efforts to seek bequests and other planned gifts, Internet donations, corporate and foundation grants, and major gifts. “They’ve all become very robust, sophisticated programs,” says Mr. Towers.

The Humane Society of the United States (No. 133), which raised more than $116-million last year, used to depend mainly on direct mail but has expanded into online fund raising and has increased its staff of fund raisers who seek large gifts. Now, Wayne Pacelle, the Humane Society’s chief executive, is planning a new revenue-generating venture: a line of animal-friendly products such as pet food, lawn-care products that do not harm wildlife, and other goods.

“If we can market products that help people solve animal problems and exercise humane options,” he says, “it is a way to advance our mission and generate revenue.

“One of my watchwords in fund raising is diversification.”