Guidelines for Fundraising Including Expense & Profit Ratio

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Fundraising is an important job for any nonprofit or charity, but it should never become the primary mission. One of the guidelines for judging nonprofits is financial efficiency: Cathedral Consulting says the rule of thumb is that 80 percent of funds raised should go to programs, not pledge drives or administration. Even good nonprofits may fall short, and the kind of nonprofit makes a difference. Museums, for instance, have more overhead than programs for feeding the homeless. But every nonprofit should track the ratio of fundraising expense to fundraising income.

Basic Guidelines

When you're starting out, it's hard to convince foundations and governments to trust you with grant money. Your best bet is to solicit individual donations. Your pitch -- whether it's an email, a brochure, or a speech -- should explain what you need the money for, how you'll spend it and what you expect to accomplish. Be specific: "Pay for 100 poor kids to attend art classes" is better than "enhance the arts in our community."

Expense to Income

The measure of an effective fundraising event or campaign isn't just how much money it brings in. Just as a for-profit business subtracts costs from revenue to figure its profits, your nonprofit has to subtract fundraising expenses from fundraising income. If a fundraising drive brings in $15,000 but it cost you $10,000 in advertising, events and mailing to members, you've only made $5,000 above your costs. The ratio of expense to income is 66 percent: You're spending 66 cents to make a dollar.

Good Ratios

Several groups, such as Charity Watch and Charity Navigator, set guidelines for what constitutes efficient fundraising. Charity Navigator gives the top rating to organizations with a 10 percent ratio; Charity Watch recommends a maximum 35 percent ratio. These guidelines have exceptions, though. A new organization with small reserves of cash may have to put more money into fundraising at the beginning. Nonprofits that have well-established relationships with foundations or big-money donors have lower ratios than nonprofits that have to scrounge for money.

Self-Improvement

Once you've been around awhile, look at your expense-to-income ratio for the whole period to see your average fundraising ratios. Use sites such as Charity Navigator to compare your performance with nonprofits of a similar size, mission and age. That tells you whether you're below or above average in your specialty. As time passes, compare your most recent ratio to earlier periods and see if you're becoming more efficient. If not, you have to find ways to increase your fundraising efficiency.

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About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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