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How much is that donation in your window? Calculate the Costs.

February 29, 2012

I get this question a lot: how much should it cost to process a gift? It’s a valid question most easily handled with: “It depends.”  Well, I’m tired of that answer so I’ve devised a calculation. My math is not as important as your organization’s math, but we should all be more focused on how to deliver more resources to forward our missions (i.e., streamline costs and/or increase revenues).

What are the costs of processing a gift or pledge? The components vary, by gift type, organization type, and others. The main cost is staff time, but we should also include a portion of the database costs, any services or service fees, and the materials/resources involved.

With costs estimated, how do these costs accumulate? Gift processing has four stages–intake, batching, entry, and finalization–so I’ve explored each to give a sense of costs per stage:

  • Intake: how the gift comes in affects costs.
  • Batching: the type of gift and associated information should be factored in.
  • Entry: some gifts take a lot longer to enter than others.
  • Finalization: receipts, thank yous, and reconciliation all take time and money.

Of course, every organization will differ in the actual calculation. That’s part of what makes this such a hard number to determine. Have a look at this infographic that calculates the cost to process each gift:

Processing gifts costs variable amounts

Your team's numbers will differ, but these components add up

The bottom line is that all gifts cost time, energy, and resources to process. Is your cost $6.50 per gift? Is it much more? Less? If your team is too efficient, you may be missing stewardship or quality control opportunities. Below some level, a gift costs an organization money. That number is probably closer to $20 for some gifts (tributes) than anyone would like to admit, especially if your team processes thousands of $20 gifts. The nature of philanthropy makes it nearly impossible (and certainly un-palatable) to reject small gifts, but messaging around the impact of giving could switch from the overly naive “every dollar counts” notion to something more sophisticated. So, be sure your efforts are pointing donors in the right  direction.

Don’t take my word for it. Do the math. Then, with your organization’s answer(s), try to shape donor behaviors through smarter direct response strategies supported by streamlining your operations so that you deliver as much money as possible to support your mission.

And, please share your calculations and ideas in the comments.

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2 Comments
  1. Lisa Uglialoro permalink

    Chris, thanks for this thoughtful analysis. Where might you put extraneous costs, such as the following. Maybe just add to the staff time in each category?
    -staff time to research a gift to get it entered properly?
    -extra entry time to include as much constituent data as possible (email address, spouse/child info, business info, etc.)?
    -oversight and work with auditors, etc.?
    -follow up with others to report out information (like a weekly or monthly gift log)?
    -calculating metrics for reporting?

    I wonder, if we found better ways of managing these time consuming, related tasks, would we be able to save even more and be even more efficient? We’ve found that the cost of entering the basic gift that comes to us with all correct documentation and little extra bio entry, is actually very low. It’s all these other things that really hold things up.

    Food for thought. 🙂

    • Good points, Lisa. On the right side of the chart, I have a throw away line about the idea that you could include other budget/time/resource costs. Your points about the time consuming nature of some work are well-taken. The survey data supporting the “4.6 transactions per hour” figure I assumed was intended to include these sorts of time-value of money issues (such as finalization per-gift audit issues). And, I added extra time/cost for a portion of records would need to be newly created, but not those that are just plain confusing. On the other hand, the log-keeping, metrics-reporting, file-getting extra steps may not be captured here. And, what’s more, you could rightfully include costs such as computer hardware, printers, even office space and equipment.

      I suppose the caveat for this calculation is that the numbers are not only estimations based on assumptions but they’re also potentially under-calculated for some shops and situations while for others, entering (or importing from files) gifts and pledges could average 100+ transactions an hour. Let me know if you want to dive in a little deeper.

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