How well is your fundraising really working? Sure, your event brought in six figures of revenue, and your overall revenue may be doing well, but when you drill down to the cost per dollar raised, you may discover some huge areas of wasted spending.
Donors expect you to be efficient as you use their donations to advance your nonprofit’s mission. And to be clear – efficiency doesn’t have to mean cheap. It means you use your fundraising marketing dollars in areas that produce the biggest return for each dollar raised.
The way to know how well you’re doing that is to figure out the cost per dollar raised.
And for this metric, you can apply it on a campaign-by-campaign basis, as well as across your entire organization. We’ll consider both in this article.
Why Cost Per Dollar Raised Matters
More than any other fundraising metric, the cost per dollar raised shows you the clearest picture of how well your various fundraising strategies are actually working. Here are three ways it helps.
Know How Well a Campaign Worked
Suppose you run a year-end campaign across email, direct mail, and social media, and it raises $100,000. Is that good?
Most people will answer by asking how much you spent on the campaign. Suppose you spent $30,000. That would mean your return on investment is $70k. But still, is that good? Last year you only spent $10,000 and raised $50k. Every year is different. Looking at raw ROI data makes it hard to compare year to year.
But with cost per dollar raised, the first example would be 30 cents per dollar raised, and the second would be 20 cents per dollar. By that metric, the second year was more efficient. The question is, why, and can you duplicate the more efficient approach but generate higher revenue next year? In other words, is it possible to spend $20k next year and raise $100k?
Avoid Being Misled by Raw Revenue Figures
As the previous examples reveal, raw revenue figures can be very misleading.
Suppose your fundraising event brings in $500,000, but it costs $300k to run the event. That’s a cost of 60 cents per dollar raised, which is pretty inefficient. Can you reduce your event fundraising cost per dollar down to 40 cents next year? Even if it only raises 400k, your efficiency will be higher, as will your net revenue.
Cost per dollar raised enables you to set clearer goals that don’t get distorted by the raw revenue. The same holds true for any fundraising campaign, not just events. You’re looking at the true cost of raising money.
This is one reason the Fundraising Report Card generally recommends against spending too much trying to raise money from low-dollar donors.
If you run a mass mailing campaign to donors of all types, it’s possible to raise a million dollars but spend $900k doing it because it costs a lot to mail to so many donors. And since most of the low-dollar donors either won’t give at all, or will only give small amounts, the fundraising efficiency tends to be very low.
We’ll talk more about this in a bit.
Equalize Your Evaluations of Fundraising Results
You run an email campaign, a direct mail campaign, a Google Ads and display ad campaign and a social media campaign. Each raises various amounts of money. But which one was the most efficient?
The cost per dollar raised metric will tell you because it measures all of them using the same standard.
As a caveat, it’s usually unwise to take any fundraising metric and look at it in total isolation. So, you might spend just $100 on an SMS campaign, and raise $500. That’s 20 cents per dollar raised. And you might run a Google Ads campaign that raises $50,000 but costs $20k to run, which is 40 cents per dollar raised. So the Google campaign was less efficient, but obviously, the $30k net is more useful than $400.
So, the cost per dollar raised is most effective for comparing campaigns and fundraising strategies of comparable size.
Avoid Misusing Donor Funds
Lastly, cost per dollar raised helps ensure you’re using donor funds in an effective and responsible manner. If they give you $1000, and you use that to generate $10,000, that’s a good investment of their gift, much more than the $900k to raise $1 million campaign.
Cost per dollar raised helps you figure out which strategies and methods make the best use of your donors’ money, and how much to allocate for the marketing budget of a particular campaign.
Examples of CPDR Across Fundraising Campaigns and Activities
Let’s look at some examples of how you can use cost per dollar raised to evaluate various campaigns. These are just hypothetical of course, but you’ll get an idea of how this can apply to certain situations.
Recurring Donor Campaign
Cost per dollar raised is especially useful for recurring donor campaigns. The reason is because of the lifetime value component that is most easily computed.
To make this work, you need to know the average length of time your recurring donors stick with you. And it might be different for different giving levels. Using the Fundraising Report Card, you can track all this for five different giving levels.
For example, let’s say a typical recurring donor giving between $250 and $1000 per year stays for an average of eight months. Using that, along with the average donation amount, you can know the approximate value of each new recurring donor in this giving level.
If you run a campaign that wins ten new recurring donors, and those donors will give $60 per month for eight months on average, each donor is worth $720 in lifetime value. For ten donors, that means $7200 in revenue.
How much cost is thus worth spending on a future campaign where you expect to win ten more such donors? How much did you spend on the last one? A 20 cents per dollar raised limit would mean you could spend up to $1440 on that campaign.
This is powerful stuff!
Do you see how this helps you set marketing budgets?
Year End Goal
It’s late November. Giving Tuesday is over. And you’re $150,000 short of your goal for the year. So, you get ready to create an annual giving year-end fundraising campaign.
But if you want to raise $150,000, you also need to consider how much you can spend to raise that money. From a cost-per-dollar raised perspective, how much of that $150,000 are you willing to remove for fundraising costs?
If you have a set goal for your organization to never spend more than, say, 33 cents per dollar raised, then the most you can spend to raise that money would be $50,000.
However, if you want the $150,000 to be net revenue instead of gross, then you need to factor the cost per dollar raised into the total, and increase the goal amount.
Capital Campaign
Capital campaigns can stretch out for months or even years in some cases. Here, the cost per dollar raised helps you ensure you don’t expend so much money on the campaign that you reduce the value of whatever the money is for.
If you need to raise $10 million, you don’t want to spend 50 cents per dollar to raise it. A donor would look at that and wonder why you couldn’t just raise $6 million, spend $1 million, and use the remaining $4 million you would have spent on fundraising to just fund the campaign directly.
Giving Tuesday Campaign
This type of campaign is pretty simple to measure, because it all happens on one day, more or less. It’s easy to swoon over the huge revenue figures raised on this day across the system. But what is the cost per dollar raised? It will be different for every organization.
If you look at your data and discover your CPDR for Giving Tuesday is unreasonably high, you have two choices:
- Stop doing Giving Tuesday. Some organizations have done this
- Change your strategy and use a different approach
Cost per dollar raised enables you to make smarter decisions about situations like this – including any standalone campaign, across any form of media, and with any goal. How much are you actually spending to raise each dollar?
Major Gifts Fundraising
Here, the use of cost per dollar raised shows great value.
Major gifts fundraising can be hard to measure from a traditional ROI approach, because the fundraising cycle for major gifts can stretch across years. And in many cases, you aren’t running ‘campaigns’ in the typical sense.
It’s a gift officer, devoting time, resources, and energy to develop and nurture relationships with a variety of people with high net worth.
With cost per dollar raised, you can incorporate all the expenses of your major gifts fundraising, and compare it to the revenue raised. And the longer the time period, the more revealing the data becomes, because year to year, major gift revenue can fluctuate quite a bit. You might get one huge $10 million gift from a benefactor who died and gave it to your organization in their estate plan. If your previous biggest gift ever was $5 million, then that one year will be an anomaly.
But if you consider the costs it took to win that gift, they might stretch back over decades, and include some smaller major gifts from the same donor when they were alive.
The costs here include:
- Gift officer salaries
- Travel expenses
- Printed and digital fundraising materials
- Data for donor acquisition, qualification, and cultivation
- Software that assists them in their work
- And much more
In other words – look at your whole major gift fundraising department and calculate the costs.
If you have multiple gift officers, you might be spending $500,000 per year on major gifts. But if they’re bringing in an average of $1.5 million per year, that 33 cents per dollar raised is producing $1 million in net revenue.
How to Reduce Cost Per Dollar Raised
How can you increase fundraising effectiveness by raising more while spending less? Here are a few ways to bring down your cost per dollar raised without sacrificing the equivalent.
1. Segment Your Donor Database
Segmentation allows you to focus more money on donors who are more likely to give, and give more. You can spend more money marketing to higher-dollar donors, and less on lower-dollar ones. But you can only do this if you have segmented your donors and know who those people are.
You can also segment for things like recurring donors, age of donors, households with or without children, and various other factors. Here’s more about how to use donor segmentation.
2. Prioritize High Dollar Donors
You can improve your cost per dollar raised the most by focusing on high-dollar donors. It doesn’t cost more money to send a letter to a donor who gives $500 than it does to one who gives $10.
If you create no other segments, create this one. And you can define what counts as a ‘high dollar donor’ for your organization. Major donors are your most narrow slice of your high-dollar donors. They are worth spending far more to cultivate because from a cost-per-dollar perspective, it will be more than worth it to get those returns.
3. Monitor All Fundraising Channels
Another way to curb excess costs is to pay more attention to the costs you’re devoting to the various media channels.
It’s one thing to talk about cost per dollar raised when it’s a specific campaign. But what about things like general email marketing, or social media posting, or random online display ads that seek to just raise brand awareness?
How much are you spending on strategies like this? How well is it paying off?
The only way to know is to start tracking how much actual revenue comes in through these channels, in total, over the course of time. Not every email seeks to raise money, nor should they. Same with social posts and other media uses. You’re nurturing relationships, thanking, commending, rewarding, and asking.
So, how much do you spend on email over the course of a year, and how much money comes in from email over that same year – all campaigns combined? You can calculate this for all your media channels if you’re tracking where your various donors come from.
This takes some work on the tech side, but it might be worth it if you’re worried you might have lots of waste in a particular channel.
4. Consider Donor Lifetime Value
Lastly, remember donor lifetime value when considering cost per dollar raised.
A donor might give to a direct mail campaign one time. But what if that donor gives again? And again? The costs of winning the first-time donor also apply to each subsequent gift. Donor lifetime value needs to factor in to cost per dollar raised.
With the Fundraising Report Card, you can calculate lifetime value for donors at each of the five giving levels. This will give you a fuller picture of your cost per dollar raised at each level, because you’ll know what each new donor is actually worth. But you also have to remember that winning those recurring donors does incur additional costs.
See more metrics and data you can visualize using the Fundraising Report Card