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Pyrrhic Fundraising

Nonprofits pay dearly for their donations

 

It takes money to make money, the saying goes. But nonprofits actually lose money – at least in the short term – when they try to raise funds through direct marketing, find the coauthors of a recent paper in the Journal of Nonprofit & Public Sector Marketing (vol. 16, no. 1/2). The researchers show that over a one-year period, U.K. nonprofits earned just 39 cents in donations for each $1 they spent on direct mail. Altogether, fundraising through direct marketing, which includes direct mail, television and print advertisements, and face-to-face solicitation, generated just 44 cents for every $1 invested.

“It’s extraordinarily expensive to raise money,” says Mal Warwick, head of a U.S.-based nonprofit direct marketing consulting firm. He says he has seen nonprofits spend as much as $300 per new donor through direct marketing. Organizations slowly, if ever, recoup that initial loss.

How much bang nonprofits get for their direct marketing buck has been a mystery, says Adrian Sargeant, the study’s lead author and an adjunct professor of philanthropy at Indiana University’s Center on Philanthropy. That’s why he and his co-authors Elaine Jay, a U.K.-based fundraising consultant, and Stephen Lee, the director of the Centre for Voluntary Sector Management at Henley Management College (U.K.), set out to establish baseline measures of nonprofits’ return on their direct marketing investments. They surveyed 150 of the largest U.K. charities, which together produce 74 percent of the country’s nonprofit direct marketing. Using questionnaires, they asked respondents to report how much each organization’s direct marketing efforts cost, as well as how much revenue each effort earned.

“Our research provides broad, benchmarking data that people can use to see how different [fundraising techniques] perform,” says Sargeant. “They can also see if there are big gaps between their organization and our data. If there’s big variation, they can ask, ‘Why are we different?’”

“I think it’s useful to see what the trends are, to see what large charities are doing,” says Senny Boone, executive director of the Direct Marketing Association Nonprofit Federation.

Sargeant states that although he and his colleagues conducted their study in the United Kingdom, their findings are relevant to U.S. nonprofits, where fundraising techniques have “remarkably similar” performance. Nevertheless, Sargeant is currently working on analogous studies in the United States.

The authors warn that because the study had a short time horizon – one year – it may underestimate the long-term returns of direct marketing. As Warwick points out, “The nonprofits that spend $300 to acquire new donors [do so] not because they’re stupid, but because they can get repeat income from those people.” He continues, “The reason my clients and I do direct mail is to build a base of reliable, loyal, and generous donors, some of whom will upgrade over the years and become truly major donors.”

Moreover, the authors advise that the study’s data may be more useful to larger, older nonprofits than to smaller, newer ones, because they focused only on larger organizations. A newly formed nonprofit, for example, may need to spend a lot more during its first few years of direct marketing to get new supporters than does a larger, more established nonprofit.

Although direct marketing can be expensive, “not everyone can go for a major gift-type approach,” says Boone. These more cost-efficient fundraising alternatives can generate $10 for every $1 invested. But less-established nonprofits may have a harder time getting major gifts, trusts, and corporate donations because they haven’t had time to cultivate them. According to Warwick, the majority of the major donors he sees initially give only $25, $50, or $100 in response to a direct mailing. Over the years, however, these small-time givers upgrade their support.

Sargeant discusses these findings on http://www.charityfacts.org

 
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COMMENTS

  • Tom Belford's avatar

    BY Tom Belford

    ON June 20, 2007 06:40 PM

    This article reflects either sloppy reporting or sloppy research.
    The notion that nonprofits witlessly lose money year after year on direct marketing for contributions is ludicrous. Any “study” that fails to examine donor acquisition costs in the context of lifetime donor value is plain useless. Unfortunately, an attempt to review the full study is impossible, since it cannot be found on the web ... last entry for the “Journal of Nonprofit & Public Sector Marketing” is August 2006.
    Ms. Juan, if you have a copy of this study, I’d sure like to see it!

    Tom Belford

  • Thats quite true that non-profit organisation do loss money. Most of the money spend is for advertising and promotion, every dollar donated, 50 cents or more are spend. I find it very ridiculous, why they could not do the advertising and promotion themselves? They could get volunteers to do it or even get the advertising and promotion company to sponsor the project and credit them on their site. This is for charity!

    James

  • Yeah this is something that has been a topic of many discussions.  Bottom line just like any other business a non-profit has to do some sort of advertising to get the word out there.  Theres so much free advertising or volunteers can do.

  • BY Cheap Advertising

    ON May 12, 2009 09:35 PM

    Non-profit are not exactly profit centers, especially in this environment. Most of non-profit firms are badly managed during good times. They also appears very little accountability or transparency for the usage of funds raised.

  • BY Thiago daLuz

    ON May 1, 2013 07:19 AM

    Yeah, I heard from a friend who’s a direct marketing recruiter about this. It tends to just kind of come with the territory of non-profits. It doesn’t have to, it really shouldn’t have to, but it does.

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