How Much Fund Raising Really Costs

Charities use new databases to make appeals more efficient

When Creighton University’s board of directors decided to seek $350-million in its capital campaign, a steep rise from the $250-million goal it had set previously, Lisa Calvert knew she would need more fund raisers. However, she was concerned that the trustees of the Omaha institution might not agree.

Ms. Calvert, Creighton’s vice president for university relations, turned to a new resource for help: a database that allows universities to compare their fund-raising costs and returns against those of other institutions. After she showed the board that other universities had needed larger staffs than Creighton’s to reach comparable goals, she received their blessing to hire four new fund raisers.

“You can’t argue with data,” Ms. Calvert says.

Creighton is among a growing number of nonprofit organizations that are beginning to share specific details of their fund-raising operations with each other in an effort to quantify both the costs and benefits of their activities.

Groups of similar organizations such as zoos or hospitals provide dozens of figures on every aspect of their fund raising to a trade association or outside company that puts together a database and analyzes the information it compiles. In most cases, charities can use the database to compare their performance with peer institutions while keeping private sensitive data such as salaries of specific staff members.

Creighton is part of a project managed by the Core Group, an Eden Prairie, Minn., consulting company that has collected detailed fund-raising information, much of it going back for decades, on 65 colleges and universities. Among the other fund-raising database projects under way:

• The Association of Healthcare Philanthropy has spent the past four years creating a “performance-benchmarking service” that its members — hospitals and medical centers — can use to compare how much other institutions raised overall and how specific techniques, such as planned giving and special events, fared. One goal of the new database, according to Bill McGinly, president of the association, is to move organizations away from a focus on keeping fund-raising costs low — which leads them to scrimp on staff costs and other expenses — toward a “return on investment” approach that focuses instead on getting the best possible fund-raising returns on each dollar spent.
• More than 400 nonprofit groups have responded to an online survey created by officials at the Urban Institute and the Association of Fundraising Professionals to determine how effectively organizations are spending their fund-raising dollars.

  They hope to get thousands of nonprofit groups to enter data every year on topics such as how many people stop giving annually and what percentage of donors give more than they have in the past.

  Many charities judge their fund-raising success on whether they raise a bigger total each year, says Bill Levis, an Urban Institute project manager in charge of the survey effort. But preliminary data from the research, he says, suggest that even when charities raise more money, they are losing a large number of donors every year, which means they are eating into their proceeds because they must keep spending money to recruit new donors.

• The Association of Zoos and Aquariums is creating a fund-raising database for its 215 member organizations that will become part of the association’s annual membership survey. It is collecting data from its members on gifts and other sources of income, as well as fund-raising costs, with the goal of enabling members to do more long-range planning in fund raising.

“So often, in budgeting, you never have enough information, you never have certainty,” says Jim Maddy, president of the association. “With this kind of data, we hope people will have a little more confidence in their income forecasting, as well as their cost analysis.”

Long-Term Returns

While many universities and other big charities have long shared data on direct-marketing returns and other gifts, the new databases aim to capture information on entire fund-raising operations — what organizations spend and what they earn — over the long term.

Using data gleaned from such repositories, a charity can figure out, for example, how much money it can expect to raise, given its staff size and number of donors, or how long it might take to obtain a $1-million gift.

As the data accumulate, consultants and charities say, charities will be able to predict more precisely how much additional money they will raise in each subsequent year after adding a new special event, for example, or hiring another fund raiser to seek big gifts.

At Creighton University, Ms. Calvert says that the four big-gifts specialists she hired to help reach the new campaign goal have raised even more than the analysis she conducted predicted; the development officers brought in more than $3-million in their first year. With their help, she adds, Creighton raised $50.3-million last year, an increase from $33-million in 2005, and is now on track to exceed its $350-million goal.

Tough Questions

The databases appeal to charity board members because many trustees come from the business world where companies rely on similarly designed repositories to answer tough questions, says Brian Chapman, a fund-raising consultant at Grenzebach Glier & Associates, in Chicago, who helps charities collect and analyze fund-raising information.

Fund raisers, he adds, are finding that their boards are no longer satisfied just to hear that gifts have increased.

“People on boards are asking the same questions of their nonprofit affiliates they would ask of the private sector,” Mr. Chapman says. “If somebody says, ‘Our fund raising is up 8 percent over last year,’ board members are likely to say, ‘How do I know last year was any good?’ One client was asked, ‘How rich is our prospect pool compared to peer institutions? How do I know you’re doing a good job?’”

Charity leaders are so intrigued with the idea of comparative fund-raising data that some are willing to spend more on their development efforts even before such data are available to them.

Even though the Association of Healthcare Philanthropy’s database isn’t yet up and running, “it helped me go to my boss and say, we need some help on the major-gift side, we’re going to track this closely, we’re going to monitor our success. We’ll show you how much that person brings in” and how it compares to what fund raisers at other organizations obtain, says Raymond Agnew, executive vice president of the Glens Falls Hospital Foundation in upstate New York. “What it does for any organization is help build the case for investing in your fund-raising program.”

Expensive Projects

While the databases have already led to increased investment in fund raising, the research and analysis involved in such projects are expensive. Colleges and universities are paying $10,000 to $25,000 annually, based on their type, to contribute to and glean information from the Core Group database.

In return, they receive a detailed analysis of their fund-raising operation, annual reports on their performance compared with peer institutions, and consultations.

While the information and consultations have already been useful to some charities, particularly the large organizations that can afford the most detailed fund-raising analyses, others aren’t sure they really need such information or can afford it.

Some organizations are reluctant to contribute sensitive data, such as salaries, that provide the most complete and accurate analysis of fund-raising costs and benefits. And others say privately that they aren’t eager to have their fund-raising operations weighed against those of similar organizations.

One of the biggest sticking points for the database projects is the difficulty of collecting accurate information on charities’ fund-raising expenses, consultants and other experts say. At some organizations, for example, staff members outside the development office spend part of their working hours on solicitating donors, and it can be hard to assign a value to those efforts.

Charities, experts note, are judged on how low their fund-raising costs are, and many have found ways to make those costs appear lower than they actually are, by shifting some fund-raising costs into the expenses of running programs and services provided by an organization. While such bookkeeping approaches are perfectly legal, they obscure the actual cost of raising money.

The Association of American Medical Colleges has been compiling information on fund-raising costs for the past eight years but is still refining its survey to allow more-accurate cost comparisons, says Chris M. Tucker, the director of the project.

In reporting the cost of producing campaign materials, for example, one medical college may include the cost to print them but not to create them, because its own art department did the work. Another college that hires outside help for the entire project may report both costs in answer to the same question.

“You need to consider the many ways that your survey question could be interpreted. The more you help people understand exactly what the questions are, the better the data will be,” Mr. Tucker says.

Even with their problems, the fund-raising databases are drawing the attention of more and more organizations, and a few participating organizations have already reaped big financial gains.

At Wesleyan University, Barbara-Jan Wilson, vice president for university relations, recently persuaded 10 donors to make gifts totaling $1.4-million to pay for fund-raising operations at her institution, on the premise that those donations will generate contributions worth at least five times as much in the coming decade.

“We’re telling our donors that giving their money for development is like making a gift to the endowment because it will bring back money to Wesleyan,” she says.

Ms. Wilson has hard data to back up that claim. Last year, armed with statistics gleaned from other universities, she and her colleagues persuaded the board to spend $1-million more on salaries and other fund-raising costs, and contributions rose to $36-million, an increase of 20 percent.

“Last year,” Ms. Wilson says, “we put in an extra $1-million and raised an extra $6-million.”