Our money is on you.
You’re a financial wizard and may not even know it. An average fundraising department can double their money in as little as 4 years. That is what an annual return of 22% yields.
That’s an astounding return! Fundraisers are amazing at what they do. Unfortunately, many are not fluent in ‘financial speak’. This language barrier causes CFOs across the sector to miss out on many amazing opportunities. Yet you would be hard pressed to find an investment banker that would pass on a 22% annual return.
Think like an investment banker [act like a fundraiser].
Last week’s post proposed that we need to separate acquisition into its own cost center. While classifying the acquisition budget as a separate cost center is a good start, we now need to start talking like an investment banker too. To help you get started here are a few terms that we all should know about the fundraising program.
Must Know Metrics
Net per Acquired Donor = The amount of net profit/costs per each new donor.
Net per Reactivated Donor = The amount of net profit/costs per each lapsed donor recaptured.
Net per Retained Donor = The amount of net profit/costs per each existing and retained donor.
5 Year Life Time Value = The total dollar value a donor is worth after 5 years.
Donor Gap = The number of donor responses needed to maintain file size.
ROI = Revenue/Cost (There are many different variations for calculating the ROI, for our purposes we are keeping it simple.
With these metrics, you can craft a compelling case for investment in growth and create an investment compass that will guide campaign decisions. If getting your hands on these numbers seems overwhelming, don’t give up. Here are two sources to get them for free: Request a Donor Contact Strategy Plan or start here to calculate them yourself.
Many fundraiser's already do use at least some of these metrics and all programs require a budget that outlines some top line numbers. To illustrate how we go from talking like a fundraiser to talking like an investment banker consider these two approaches.
First the traditional fundraising budget would look something like this. There may be more detail, the budget may even include the cost to acquire, but is generally viewed as a single year expense line item.
To get this to look more like an investment banker we need to first expand our view. In the example below a 5 year horizon is used. Then with a few minor tweaks using numbers we already have our acquisition investment request should look more like this.
For some more information and some additional free resources to help you get started visit our budget solution center or we are happy to work with you to prepare your own financial case for funding. How do you make the case for acquisition?
I am going to dive deeper into the acquisition investment highlight industry averages and balancing this investment with the lapsed reactivation in two weeks. First in the next post I will go over sector averages related to the house file [active donors] or profit center in the What to Expect When You're Fundraising post.