I was looking over a client’s budget recently, and something struck me as I was reviewing their acquisition numbers. It started with a relatively simple question. Why are you only budgeting to bring in 8,000 new donors?
The DonorTrends Contact Strategy Plan advised that they should be trying to acquire 10,000 new donors this year if they wanted to maintain file size. Why was there a 20% difference?
After a call with the development director I learned that they were not comfortable presenting a budget that showed a decline in net revenue.
A-ha! It dawned on me that the problem here is not that the fundraiser did not know they needed more new donors. The problem was they did not feel equipped to justify the investment to finance.
As many can attest, the Development Dept. does not always speak the same language as Finance. What if instead of asking the CFO to “lose more money this year”, we said “we want to raise more money next year and the year after that”.
Isn’t this a better way to communicate the message? I bet the CFO would feel more confident approving a budget with "a bigger investment in long term growth" as opposed to "less net revenue this year, because we need more donors next year", even though they mean the same thing.
This breakdown in communication is costing organizations time and money. My goal is to address the destructive barrier between the fundraising community and the world of finance and offer practical solutions to bridge the gap.
Cost and Profit Centers
Finance has a tough job. They are responsible for ensuring program and administration are funded. We’ll call these cost centers.
To cover these costs the organization has to build a ‘profit center’. For many organizations the ‘profit center’ is the fundraising program. That is the entire fundraising program including acquisition and reactivation.
The idea that the fundraising program is a ‘profit center’ can be dangerous. It is vital that the folks in development and finance agree that fundraising is not always a profit center.
If you’re wondering if your program is treated as a Profit Center, think about your budget process. How would this conversation go?
Fundraiser: “We’re going to need you to increase the fundraising expense budget and expect less revenue.”
Finance: “So, you’ll lose money?”
Fundraiser: “Oh, don’t worry, this additional expense will more than pay for itself over the next five years.”
Finance: “Let’s stick with the original plan – increase net revenue 5% over last year.”
Finance doesn’t want to hear about the 5-year growth plan in acquisition. Finance needs to know they can cover payroll and fund program. Finance needs the fundraisers to spend less and raise more.
Fundraisers need to spend money on acquisition and reactivation to keep the donor file from shrinking. No file. No profit center.
We have this inherent conflict.
Practical Solution #1
Acquisition and reactivation should be defined as costs centers.
What if we separated acquisition / reactivation and house file development into two budgets?
If revenue and expense for acquisition and reactivation were separated, finance would start to see what we see. Ultimately, they will start to think differently about these two line items.
This is just the first step; more practical solutions to follow:
- How to build an investment minded organization.
- What to Expect When You're Fundraising: Sector Average ROI Ratios
- What to Expect When You're Investing: Sector Average Acquisition ROI Ratios
Do you have challenges communication with the Finance or Fundraising departments? Let us know what you’re facing or if you’ve developed some practical solutions that we can learn from.