Demystifying Fundraising Metrics: Practical Insights Into Tracking Your Fundraising

Announcer: 0:05

Welcome to the Practice of Non-Profit Leadership, a podcast specifically designed for executive directors of non-profit organizations. With a touch of humor, your co-hosts, tim and Nathan, work to provide encouragement, insights and practical strategies to help you be a more effective leader. And now here's Tim and Nathan.

Tim Barnes: 0:28

Welcome to episode 114 of the Practice of Non-Profit Leadership. I'm Tim Barnes and I'm Nathan Ruby.

Nathan Ruby: 0:36

Hey Tim, have you ever sat down on your couch and googled fundraising metrics just to see what's out there and what pops up on the internet?

Tim Barnes: 0:49

I have to say, Nathan, that's one of the things I've never even thought about doing. So, no, I haven't done that.

Nathan Ruby: 0:56

Really Huh, would it be weird if I did that.

Tim Barnes: 1:01

Well, no, for you that's kind of normal, so I don't have a problem with that at all.

Nathan Ruby: 1:07

Well, all right then, because that's exactly what we're going to be talking about today Fundraising metrics how to use them and also how they can lie to you.

Tim Barnes: 1:19

Wow. Well, here on the Practice of Non-Profit Leadership, we often talk about how numbers are not always exact or written in stone. They tell a story and that story is often dynamic. It changes and evolves over time. Numbers are not necessarily black and white, maybe a little more gray. I guess Nathan is that right?

Nathan Ruby: 1:41

Oh yeah absolutely right, tim. And so today we're going to talk about four common fundraising metrics, and these four are gift size, new donors, cost of dollar raised and return on investment, commonly referred to as ROI. So all right, we ready to hit it.

Tim Barnes: 2:02

Well, I'm going to throw you a curveball, nathan. Uh-oh, who should be listening to this? Who does this apply to? Well, we should be concerned about fundraising metrics.

Nathan Ruby: 2:13

Well, that's a good question, tim, and it's really anybody involved in the fundraising process, and especially executive directors of smaller organizations. And because these type of metrics are often overlooked and they're not covered in board meetings and your board members are not asking you for these numbers, and whoever is handling your finance office, your county people, your bookkeeping people they're not asking for this either. So it's really easy to overlook metrics. And now I am not a oh, what am I going to say, tim, I'm not a true believer. We watched Christmas Chronicles the other day, tim, my wife and I so that was true believer was in there. So I'm not a true believer in metrics. I think they're extremely helpful and I do think they tell a story that we need to pay attention to. So these are things you do need to pay attention to, but they also could be misleading, and that's the part today of how they lie to you. And so if you are running a nonprofit organization, if you're the executive director, you really need to be paying attention to this stuff, and that's why we're talking about it today.

Tim Barnes: 3:34

So if you're tempted to turn off whatever you're listening to and go somewhere else, Nathan says stay here, because it's really important that you know this. Yes it is, so let's dive in. I think we're ready to go now. All right, let's hit it.

Nathan Ruby: 3:49

Number one gift size. Now, this is a really common one because people get excited about large gifts that come in and it doesn't make any difference. So a large gift is relative. So a large gift to you may be $500 or maybe it's $100, or maybe it's $5,000 or $50,000. Or it depends Major gifts or big gifts. They're relative, based on the size of the organization and gifts that you typically get. But no matter what your threshold is for major gifts or large gifts, gift size gets people excited. Every time a big gift comes in, you know, and I do the same thing I get a gift that's a big one for us and I will either call or text my philanthropy committee chair, I may text the board president, I may text the treasurer and say, oh my gosh, look what we got today. And so I do the same thing. I'm excited about it. But you've got to use that within context. So all right. So how do you use gift size as a metric? Well, first of all is it is a way to tell if your fundraising strategy is working or not. So if you were doing, for this example, let's say that you are going to do a direct mail piece and typical direct mail response, depending on a whole bunch of factors. But for a general rule of thumb, let's say one to 3% is kind of a normal average response that you might expect, and $25, $30 would be an average gift. So let's say 3% response rate and $30 average gift. Those are normal, normal average for your organization. Well, let's say you send a direct mail piece out and you get a 10% response rate and a $100 average gift. Well, you could say, oh my gosh, based on that metric, that worked really well. We need to do that again. We need to do another letter just like that, and that would be justified. I mean, if you got a 10% response rate and $100 average gift, seriously, you call Tim and I and tell us how you did it, because we'd like to copy it. But what happens in those numbers and this is how it can lie to you is what's called outliers, and an outlier is when something happens that is not normal or not average, and you can have outliers to the positive side and outliers to the negative side. So let's say that we got a $100 average gift. But when we started looking in there and we started peeling back some of the layers of the onion, we realized that, oh, we got a $5,000 gift from a donor that we kind of already expected was going to send that gift anyway. And so what happened was that donor was getting ready to send the check and they just, all of a sudden, here is this mailer that comes in the mail and, oh, there's an envelope that's already got the address on it and I could just stick my check in there and send it back. And it's simple and it's easy. That happens all the time, that's pretty common. Well then you need to take that $5,000 out of your direct mail numbers and recalculate the numbers. So now, without your $5,000 gift in there, now your appeal maybe the 3% response rate or the 10% response rate is still there, but now you're down to $15 average or $18 or $20. Now you would make a different conclusion about that particular appeal. So you have to make sure, when you're reviewing those results and you see those numbers, that you don't just take that as a gospel truth or as a definite. You've got to look and make sure that there aren't any outliers in there or oddball gifts or anything there that would skew the numbers when you're looking at it.

Tim Barnes: 8:00

Well, that's really good. I think anytime you just you try to average something, you have to look at the whole picture. You can't just take it at face value. So that's a really good word.

Nathan Ruby: 8:11

Yeah, and I think also on appeals like that on gift size, I think that works both ways. I mean, the other side of that would be, if you were way under, okay, well, that's weird. If I've done two or three of these and I expected a certain thing and I got something that was way under, I got a half a percent response rate as opposed to a 3%. Well, okay, that's what it's worth looking into more. So those oddballs or those outliers work on both the positive and the negative side. So again, when you get something that's way out of normal for gift size, check into the details and see what's going on, all right. Number two number of new donors. Now I hear all the time, as I'm talking to listeners and I'm talking to other executive directors and once in a while for my own board, there's always this concern about new donors. And you know, if you're like my Tim, I don't know about your donor base I'll ask this in a second but my donor base is and every organization I've ever worked for, your donor base is aging. I mean, that is the bulk of our donors and the organizations that I have worked for have been in that you know at least for sure, 50 and above, but probably 60 or 65 and above, and certainly that's the case now. And so there is a concern about new donors and how do we replace donors as they age out? And I don't know, tim, is that fair for your organization? Is that pretty consistent or no?

Tim Barnes: 9:49

Yeah, I think you know we continually bring new people into our organization. As they come, they oftentimes bring donors with them, and so it kind of depends on where they're at. I think. In general, I would say we're probably at the same stage.

Nathan Ruby: 10:08

But how important is it? I mean, should it be a primary concern or is it a? Hey, this is something that we need to be tracking and you know, I do believe, and I will say, that every organization needs to have a steady stream of new donors coming into the donor file. A healthy, vibrant new donor strategy is important, all right, and I'm not telling you it's not because it is, but here's the here's the lie of using strict, straight new donor numbers as the metric, and that is that's not the best metric to pay attention to when you're talking about total donors. So, on average, organizations only keep 45% of the donors that gave year over year. So you have a new donor that comes in and only 45% of them give a gift in the second year, and so that attrition rate is atrocious. And that's average. So that is across all organizations. So if you are losing, if you're keeping, if you're, on average, organizations only keep 45% of donors. So that means you're losing 55% of your donors. Well, let me tell you, it is way, way, way easier to keep an existing donor than to go and find a new donor. So it's kind of like if you're in a boat and you're out on a rowboat and you're out in a pond and there's a hole in the boat and the boat is sinking because there's a hole in the boat and you've got a bucket and you're just, you know you're scooping water, you're scooping water, you're scooping water. Well, you could scoop water, but if the water is coming in faster than you're scooping it out, you can sink. So maybe there's a way to just like pick up a rag or something or some type and just plug the hole and then the boat is not sinking as much. How many donors you have? And this is a simple calculation. It's just how many donors did you have this year versus last year. So we're coming up to year end and a really great, simple time to do this. It's hard to do it in November or December because there are so many donors that are coming in. You know you'll have donors that if they're giving an annual gift or they give it in December. So late November, early December, is really not the time to run this number. The time to run this number I always do it, tim. It's part of my New Year's Day routine. You know I try to not work too much on New Year's Day or during that holiday, but that is always when I run my numbers, because then I know exactly what my donor numbers were for the year compared to the year before. I just see where you're at and see if that's running low or what those trends are. So it is much, much easier to stop donors going out the back door than to solely focus on new donors coming in the front door.

Tim Barnes: 13:24

So if I'm sitting here listening to you, I would think I've got to figure out how to do both. How do I continue to build strong relationships with those who are already on board? And yet part of my time still needs to be hey, who needs to know about us? Who needs to come in? So you've got to kind of figure out what works for you. But you can't do one without the other, right? Yeah?

Nathan Ruby: 13:46

exactly and I think it's hard to put an exact number on it, but in my head, if I had to put a percentage on it, Tim, I would say 70% of my effort would be on keeping existing donors through connecting and having conversations and calling them on the phone and visiting with them and newsletters and appeal letters and online communications and emails and texts and all those things that we do to keep and connect it to donors. I would spend 70% of my time, energy and effort doing that, and then maybe 30% of new donors. How am I going to? How could we do some, Some event or how could we do something whatever that is, to attract and acquire new donors? 70, 30, maybe even 80, 20, somewhere in there. That's where I would put that focus.

Tim Barnes: 14:44

Well, and don't you feel like if you're doing a really good job with your current donors? Word of mouth is so powerful and they're like oh man, you need to hear about our organization, so it's worth it, I think, treating your current donors well and working with them.

Nathan Ruby: 15:02

Yeah, absolutely Absolutely. It will pay more dividend now and more dividend later than trying to bring in new donors and then go through a five-year cultivation process of trying to get them educated up and connected enough to the organization to where you already have your donors that you're going to be losing All right. Number three cost of dollar raised. So this is an important one, and answering this, this cost of dollar raised, answering this question for the most part will help you answer the question should I keep doing this? And what does that mean when I say should I keep doing this, should you keep doing a specific fundraising strategy or tactic? And really what this boils down to is determining the total revenue generated by the strategy, whatever it is that you're going to do, minus the costs, both hard and soft costs, that it took for you to put that, to do that events or that direct mail piece. So, for example, we're going to use a golf outing. Everybody's familiar with golf outings. You know, if you don't have a golf outing and you went to your board and you said, hey, I think we should do a golf outing, you would probably have 80 to 90% of your board members agree with you that that was a good idea. Whether it's actually a good idea or not, everybody loves a golf outing, so we're going to use that as an example. So if you did a golf outing, and let's say that you had prizes, because typically you go to a golf outing and you have prizes you have a prize for the longest drive, and you have a prize for closest to the pen, and you have a prize for closest to the center line and all kinds of other prizes the winning team and the second team and the third place team. And if you've got if you've got a full, maxed out 144 person golf outing, you might have an A flight and a B flight. So there's all kinds of prizes that you could do at a golf event. So did you pay for those prizes? Did you have to go out and purchase those prizes? Okay, well, if you purchase those prizes, that goes against the cost of the event. You have to subtract that out of the total revenue to see what your net revenue is. But no, no, nathan, we did not pay for those prizes. We sent our volunteers out and we sent our staff they, our staff volunteered to go out and get prizes on our on some of their spare time. Okay, great, well, did you count the cost of having your staff out there, or did you count the cost of the staff person who was managing the volunteers to go out and pick that stuff up? Did you have a meal? Well, yeah, we had a meal, and it was. You know, it was part of the cost of the, of the golfing thing. Okay, well, great, then you've already got that added in. But if you catered the meal okay, well, now you've got catering how much time did your staff person or did you spend working with the caterer to get the meal figured out and to get it all figured out? There's cost to that. That's that's the cost of the meal is a hard cost. Your time to manage all that is a soft cost, and executive directors are pretty good at including the hard costs because it's easy. You know the, the meal, the, the caterer, cost us $953. Well, excellent, that's a good amount of money to get that out of receipt. That's an easy thing to count. The 27 hours, which is a half a week of your time, that you spent at your, at the, at the cost or at the price that you are being paid. That usually doesn't get thrown into the. You know the cost of a golf outing. So you get my point. So you have to understand that you get all of those costs. Then total raise minus total expenses, that gives you a net amount. And I'm not saying this to to knock on golf outings. That's not what I'm trying to do here. What I'm saying is is that you make sure that you have all of the costs associated with a specific strategy so that then you can make a good financial decision on whether or not that event whether it's a golf outing or a direct mail piece or grant work or anything else that you will continue to do that or not. And here here's a little hint Sometimes, a lot of the time somewhere between sometimes and a lot of the time whatever it is that you're doing in your fundraising may actually be losing money when you add everything into it. So you really got to take a hard look at both the hard costs and the soft costs that come up with the real return on investment. So how does cost of a dollar raised? How does it lie to you? Well, it'll lie to you in a if you have an event that is supposed to be marketing based. So you may want to do like a campaign or an event to raise awareness or that gets in front of more people or educates people on what you do, and those type of things are totally okay. I mean, you can totally do that and not have net revenue as a primary goal of that function, of that thing that you're doing, and so we call those marketing events or communication events. So if you have a marketing event, if you want to do a dinner and you want to invite donors to come over to the dinner and learn about what you're doing, and you want to call that a marketing or communication effort, and if it breaks even, if it generates enough money to break even, that's awesome. I mean that's great. But what you have to get careful in is when you have an event like that and it's built into your fundraising revenue, into your fundraising plan, and then it only breaks even year after year after year, well then you're going backwards and that's something you have to look out of, whether you want to continue to do that or not.

Tim Barnes: 21:46

See that happen in a lot of places with a lot of organizations. Your spot on, nathan. It's easy to miss everything that goes into pulling off something like that.

Nathan Ruby: 21:57

Yeah, it's looking at those costs and, like I said, the hard costs are easy because you have a receipt, you have an invoice, you have a receipt. That's easy to count. It is the amount of staff time that goes into that, not only the day of itself, but the planning, the pre-planning and the planning, and then the follow-up and the post-event. And, yeah, when you add that all up, you got to be producing some pretty good revenue to offset the cost of most events. All right, now let's go on to the fourth one ROI return on investment. So this is a little bit cost of dollar raised, but not exactly the same. So, according to the Association of Fundraising Professionals, afp, the average fundraising ROI for nonprofits in North America is 3.0, meaning that for every dollar spent on fundraising, nonprofits generate $3 in net income. So remember, net is after expenses, which goes back to our cost of dollar raised. So if you are spending a dollar on fundraising, then according to this number, you should be bringing in a net of $3 for every dollar spent. And now this is a great rule of thumb that you can use across your entire fundraising program. It's an average that, because it's an average, what they've done is they've already accounted for the billion dollar nonprofits? And there are. If you haven't ever looked, there are billion with a, b. There are billion dollar nonprofits out there not us, not Tim and I, probably not you if you're listening to our podcast Maybe, maybe, but probably not. And then this also averages out what I call the recreational nonprofit, so maybe a nonprofit that somebody started and they're just funding it themselves and they've got a $10,000 budget. So the really high, really low, is those are averaged out, and so you can look at your overall program and say, okay, we spent X amount of dollars, we generated this amount of dollars after expenses, and where am I based on that 3.0? And so that is helpful to look at a big overarching, where you are from a fundraising perspective. But again, it has its limits. And so here's how ROI will lie to you. Roi is essentially relevant, especially relevant in a mature fundraising situation. So let's say, for example, you do an appeal, let's say you do a year end appeal and you've done that appeal for five years. Well, if you've done it for five years, then you are going to have a really solid ROI on that. You are going to know exactly what that is. You're going to know what your expenses are going to be. You're going to know what your expected revenue is going to be. You're going to have very good data on that. However, if you are just starting something new, then ROI isn't really relevant. If you start that new, say you're going to start a new appeal. Let's say you're going to start a spring appeal. You've never done one before. Well, you're not going to be able to maximize that because your donors have never gotten a spring appeal before. So in my experience, what I've seen is it typically takes three years. Whether it's an appeal or an event or an online strategy, it usually takes about three cycles to get your donors ready to say okay. So for my organization, we do a spring late March about every year late March, and we have donors who that is where they give, they know it's coming, they're expecting it and where five is going to be. This will be fifth year this upcoming year. So I know pretty much what those numbers are going to be and what the ROI is going to be. So, three years to get it up to that speed. So if you're doing something new and you look at the ROI, well, it's not going to probably be very good and the first year you probably might even lose money on it. Well, you can't say, oh well, I got a negative ROI so I'm not going to do that anymore. Well, you know, you've got to expect that the first year and maybe you break even the second year and maybe you make money the third year. So you've got to be careful on new things that you're doing and making sure that you give a new fundraising strategy or a new tactic to that strategy time to mature for ROI to really start to make sense in that situation. So another way that ROI will lie to you is that ROI doesn't take into account how competent you are as a fundraiser. So, for example, I am not a fundraising event person. I know the basics, I know the outlines, I know how it flows, but that is not my area of expertise. Never has been, never will be. And so if I did an event all by myself, where I was leading it, I was planning it, I was putting it together, I was doing all those things and then you take the same event, the same organization, the same donors and you bring in a fundraising event planner Now I'm not saying a wedding planner or a party planner, I'm saying an experienced fundraising event planner. Those are different. You bring somebody in that's an expert that really knows what they're doing. Well, I would expect them to raise a heck of a lot more money than I will, and so that's just the way it is. That's what expertise does. And so, well, you may be saying, well, come on, nathan, hold on. That's ROI, again, is a percentage, and so whether you do it yourself or whether you pay an expert to do it, the ROI will be a percentage. So you have to pay the expert to do it, and so if you raise more money, you know you've got that expense in there, whereas when you did it yourself, you don't have the expense to pay. Well, that's a good question, and it's a good thing that you brought that up, because here's the answer In fundraising, expertise will have a compounding effect. So your expert will bring in two times, three times, four times what I would do if I was doing it without any experience at all. And so when you look at ROI, on organizational event or ROI, you just got to be careful, because if you don't have a team with real experts in fundraising, it'll be very difficult for you to hit to some of the benchmarks that if you look out on the internet, you'll find benchmarks for ROIs for this type of fundraising, this type of fundraising. But, you know, if you don't have really high-end experts to do that type of work, that's not relevant to you and it doesn't mean that you should stop doing it. It just means that you can't expect the same ROI that you know the hospital down the street or the university or a $7 million nonprofit has, because they've got different levels of expertise than what you do.

Tim Barnes: 30:00

Well, nathan, this is all really really good, and I just want to remind our listeners you know we've gone through a lot of information. I mean this flows out of you, because it's who you are. I was talking kind of fast there one night. Oh, it's all good. But you know you can either if you want to listen to the episode again. That'd be great. But also we have transcript available on our show notes. So if they're like, what was he saying? What does he? What does that mean? You can go to the show notes and get a pretty good idea of what we've shared. Nathan, why don't you kind of bring it all together?

Nathan Ruby: 30:33

here, yeah. So Mark Twain once said there are three kinds of lies lies, damned lies and statistics. And fundraising metrics can be extremely helpful at understanding what fundraising strategy and tactics are working, which ones need to be changed and sometimes and this might be even most importantly which ones need to be dropped altogether. While these numbers are indeed very helpful, they can also be extremely misleading and can potentially take you down the wrong path. So use them as a guideline, kind of as a way to say, hey, I think we're going in the right direction, let's keep moving forward, or hey, I think something isn't right, we need to dig into this more and, you know, we may want to think about changing something. Use fundraising metrics as a guide, not as an absolute decision maker.

Tim Barnes: 31:32

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