Some fundraising strategies cost more than others, just like some donors cost more than others if they have poor retention rates.
Rated by cost-effectiveness based on the cost to raise a dollar, the two most expensive fundraising strategies are direct mail acquisition and special events. On average you spend 50 cents for each dollar you raise at a special event.
There are much better ways to raise money that are cheaper, require less staff time, and generate more net revenue.
So, why do we do so many events?
The answers are many.
You may have board members who are more comfortable with the idea of selling tickets or tables than sitting down with a donor, finding out what they care about, and making an ask.
Maybe you’re new at your nonprofit, and you inherited a beloved event. You may have a boss or board members who don’t realize how much heavy lifting and staff time it takes to put on an event and think it’s some kind of easy windfall for the organization.
Or you could have well-meaning outsiders who want to “do an event for you” and suddenly you’re pulled into a cause marketing or peer-to-peer fundraising event or campaign that you don’t have the time to effectively manage.
How can we get better at understanding the true cost of an event?
Whether it’s a gala, golf tournament, marathon, trivia night, or online wine tasting, the number one thing that gets overlooked in evaluating event costs is the human capital required to produce the event.
To get better at understanding the trust cost of an event, you need to evaluate the event’s return on investment (ROI).
A simple formula to evaluate your event ROI is:
Net revenue = gross revenue – fundraising costs (direct and indirect)
Direct costs include invitations, venue rental, food, beverage, printing, postage, vendors, music, entertainment, etc.
Indirect costs include the time staff spend planning, marketing, and attending the event (salary plus benefits) and board member time as well. According to the 2021 figures from the Independent Sector and Do Good Institute, the value of one volunteer hour was $28.54.
On top of direct costs and indirect costs, you also have opportunity costs. All that time you spent on your event could have been spent on other fundraising efforts or programs.
Many organizations ask major donors to sponsor a table when they could be soliciting the donor for a larger major gift instead. It’s likely that if you invested the time spent on events into cultivating and stewarding major donors, you could raise more money with less effort.
The most common mistake most nonprofits make is not accounting for staff time in the total cost of an event.
The second biggest mistake is not doing enough to retain event donors, who have some of the highest lapse rates of all donors.
Perhaps the worst mistake, however, is hiding behind the hazy and ambiguous veil of “raising awareness” to avoid crunching the numbers and having an honest reckoning with your fundraising results.
Shutting down the party
“Raising awareness” doesn’t pay the bills or cover your overhead. After doing an honest accounting for indirect costs, many nonprofit professionals realize they could be raising more revenue through major gifts while spending 10-15 times less money.
If you’ve crunched the numbers and are evaluating terminating or changing your event strategy, ask yourself these questions, courtesy of Kent Stroman:
- How can it be more profitable?
- Are there ways for us to boost revenue and decrease expenses?
- How can we reduce the burden? How can we expand the impact?
- Who needs to be involved in this decision?
- How can we gracefully exit?
- What publicity or communication issues are at stake?
- What fundraising strategies pay off more in the long term?
- What could we do instead?
Beware: Grants can be just as costly as special events.
Galas and golf tournaments aren’t the only hamster wheels we get stuck on. Grants can prove just as addictive and time-consuming. Some of the ways grants can drain an organization’s resources include:
- Not paying for administrative costs like salaries, rent, etc.
- Lengthy cumbersome application processes that include multiple time-consuming rounds of presenting your case to funders
- Over reliance on government funding
Be it events or grants, the most important discussion to have is what is the most optimal use of your nonprofit’s most precious resource: your staff’s time and energy.
Do you have a story of how you evaluated the true cost of your event and pivoted to something else? Drop it in the comments!
Want to learn more about the returns you get on your fundraising strategies? Do you know which fundraising strategies yield your very best donors? Download Rachel’s handy Fundraising Year in Review questionnaire for a guide to start examining your efforts.
Schedule a live demo with our team, and we’ll show you how easy it is to create and automate reports, utilize online and offline fundraising tools, quickly integrate and access all your data, and ultimately create more time to engage your donors.