How to Lose Money on Fundraising

August 12, 2008

Posted in Fundraising.

Every non-profit fundraising and marketing consultant I’ve met recommends hosting a single “signature” event each year. This event becomes part of your brand and continues to grow in revenue over time. Many organizations rely on this event to produce their entire operations budget, even without any program fees.

When I started at Camp Fire, we had a dozen or so events each year. These ranged from program- to fundraising-oriented events that usually took place over a few hours or a few days. We held a yard sale where we collected and sold all kinds of donated goods. It took a month to collect stuff, most of it never sold, and in the last year we did it we brought in something around $750.

That’s $750 more than we had before. Not bad, you say?

How much did we spend on this fundraiser?

Say we had 10 people average 20 hours to collect, organize, price, set up, and run the event. I believe it was far more time than that, but let’s just estimate.

So for 200 hours, we made a whopping $750. That’s $3.75/hour. Given that the people running this included a handful of paid staff, we lost a lot of money running such an event. Not only did we lose money, we wasted valuable time that could have been better spent marketing, developing programs, and more efficiently raising money.

Crunch the numbers

In order to make a wise decision about fundraising, consider some basic factors:

  • What is the profit we’ll make from this event on an hourly basis?
  • Are the people who do this work worth more per hour than this?
  • What other activities could we focus on that would generate more revenue?
  • Are there indirect or intangible returns: marketing, publicity, relationship building?

Why an Hourly Rate?

Federal minimum wage right now is $6.55 an hour. So at the very least, you could get a minimum wage job and donate all of the paycheck to your organization. So your baseline should start at $6.55. Now hopefully you’re talented enough to get yourself a job that pays more than minimum wage. Now that baseline goes up again. Say you’re at $10/hour. But in reality, that’s only a $20,000/year salary. Your board members probably make more than that, right? So they don’t want to work for $10/hour for your organization – their time is worth more than that. In fact, if given a choice between working for $10/hour and simply paying you the $10/hour (because they make a lot more than that) they might just pay you instead. See where I’m going with this?

If your board member is a lawyer who makes $300/hour, is he going to volunteer for your fundraiser all day to make a measly $100? Or would he just offer to work an extra hour and just donate the extra cash?

You have to determine how much your fundraiser will make per hour worked and, if that’s acceptable, then get the right people to do that job.

I’m not an MBA, but I play on one my blog

Let’s look at a sample model I drew up for a small fundraiser. We assume two staff members both making $10/hour and an additional six volunteers. Everybody would work 48 hours each.

Expected revenue: $10,000

  People Rate Hours Cost Profit
Staff 2 $10 96 $960 $1,540
Volunteers 6 0 288 0 $7,500
Totals 8   384 $960 $9,040

$10,000 from 384 hours of work means that our hourly rate is $26.04. That’s not trivial, especially since we can pay a couple of staff members $10/hour to coordinate and recruit another 6 volunteers to help for free. We still make a profit on the staff members, and the volunteers’ time is pure profit.

What else could we do?

The real question is whether this is enough to warrant doing the fundraiser. Would the staff and volunteer time be better spent developing our fee-for-service programs, or sending appeal letters to our mailing list? How about making visits and calls to schools to promote our camps? One of our board members responded to this by offering to just pay $26/hour to not have to work the event. He’s clearly not the right person to be working at it, but in the past the board was the de facto source for volunteers.

What you don’t know can definitely hurt you

What staff or volunteer activities are more profitable than others? How can we maximize the return on our time and payroll? Unfortunately, many organizations don’t even ask these basic questions. The answers aren’t always easy, but they’re worth pursuing.

Take the time to create a budget, project revenues, and evaluate even your smallest events. Because sometimes, you’ll find that the same amount of work goes into the tiny events as the biggest ones, with very different outcomes.

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