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3 Critical Concerns with Cost Per Dollar Raised (CP$R)

ProductivityProductivity is vitally important to nonprofits but none of us in the social sector are able to spend enough time, energy, and…well…dollars on being productive. Instead, for decades, we have been more focused on efficiency at the expense of effectiveness and impact. We stuff envelopes at night to save money, then lose overworked staff for a 5% pay increase at a nonprofit in town. Our boards embrace online innovation but funding is often on a shoestring budget. Some great studies and presentations have highlighted some of the drivers for this. After years studying this dilemma, I submit that the over-reliance on and misapplication of the “cost per dollar raised” (CP$R) metric is the clearest example of this problem. While we want to raise more, we penalize ourselves if we invest too much.

The industry needs to change and here are three critical concerns with CP$R and its sometimes negative effect our industry:

  1. Growth: Fundraising is a long-term endeavor. Expanding fundraising results takes time, consistent marketing and messaging, and investment. The current industry emphasis on CP$R diminishes the ability to weather a tough year, offset a big gift’s impact in year-over-year evaluation, or properly fund our efforts. Organizations whose strategies rightly focus on major and principal giving are particularly vulnerable to scrutiny over CP$R issues depending on the timing of a big, strategically cultivated gift.
  2. Staffing: The professionalization of fundraising is changing the math on what is reasonable for budgets. Most nonprofits will spend about 65% of their operational fundraising budget on staff and benefits. Low CP$R targets, though, mean that we may not have enough to invest once/if we get the right people on place as this mix relies heavily on the typically market-depressed salary bases provided to fundraising professionals. We might secure top talent committed to our missions, but instead we seem to experience a costly turnover rate and stunt our fundraising efforts in the process.
  3. Infrastructure: I’ve written about the “iPhone” problem–that is, people’s expectations for work-related technology and processes are shaped by their consumer experiences using tools and apps designed by the world’s biggest companies. The result is “relative deprivation”; we want from our fundraising tools what we get from our consumer products. Unfortunately, collectively, our industry simply doesn’t generate enough demand for vendors to supply tools that match our consumer experiences. Imagine if we were empowered to demand better tools that could be shown to increase our bottomline, even if we would sometimes eclipse the currently-too-low CP$R thresholds. Imagine if we could invest an extra $0.01-per-$1.00 raised or so each year as an industry. That would be a great start.

Our industry’s efficiency mantra can be overwhelming. Funders’ expectations to deliver more with less are difficult to manage. The nature of fundraising efforts, while akin to sales, is different in its non-transactional nature. Nonprofits are directed to invest less than for-profits. And, our industry’s focus on CP$R is a root cause of our challenges.

Alternatives and Additions

While CP$R is a common measure of nonprofit evaluation, there are important alternatives to CP$R. These can be taken in conjunction with costs to present a more balanced, nuanced evaluation of the effectiveness of a nonprofit.

  • Raised per Full Time Employee/Equivalent (FTE). I’ve written at length about the value of measuring “Dollars Raised per FTE.” It is a surrogate for CP$R in some ways, but it gets at a better way to position productivity and effectiveness. Study after study shows that nonprofits raising $1 million per FTE in fundraising are performing in the top quartile. Would you rather raise more by adding more people, or save money at the risk of losing people?
  • Net Gain: Imagine this scenario—you can net $10 million or $20 million in a year, but the former costs you $2 million and the latter costs you $10 million. $20 million beats $10 million, right? Not if it costs “too much” to generate. We need to be able to choose the latter but our industry, through charity watchdogs and other traditions, rewards spending less even if you provide less to your cause. There is a balance needed here. Different organization types at different stages of growth, staffing, and infrastructure require a nuanced evaluation.
  • Impact of Dollars Raised: Recent innovations by groups like GiveWell reinforce the value in looking at what was accomplished because of the funding generated by fundraising. Can more kids experience an open MRI that donors’ contributions helped fund? Can a community see a decline in diabetes because of charitably funded education efforts? These are organization-specific so don’t lend themselves to a nice, simple number, but the current reliance on CP$R too often results in overly simplistic evaluations.

Moving forward with new measures will take guts. We need to push back against the myopic focus on annual CP$R. We need to seek investment in infrastructure and technology in line with expectations of those who sit on our boards. We need to fervently battle to retain talented staff by properly funding roles. We need to clearly define the terms of the debate so definitions like “raised” retain their fundraising meaning and are not reduced to more simplistic notions defined on a general ledger. And, most importantly, we need a message that reminds our constituents of the old adage that “you get what you pay for.” More net funds for our amazing missions is more meaningful in the long run than delivering less, but more efficiently. Because our missions are so important, adopting a more effective set of evaluation tools is vitally important.

Have you succeeded in altering the focus toward productivity and away from CP$R? If so, share your story.

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3 Takeaways from CASE Gift and Records Conference

This year’s CASE Gift and Records Conference is underway and there is a lot happening in this space. Gone are the days of rote typing. Paper files aren’t going away yet, but digital imaging is on the move. Here are three great takeaways so far:

  1. Outsourcing is the new black. While it’s not for everyone, it’s on everyone’s mind.
  2. Metrics can work for the back office. Having data gets your team some skin in the game (and can help improve outcomes).
  3. Perception and exception management remains a core challenge. If we can control the anecdotal distractions, we can better serve our donors.

Have a look here to see the prezi I presented on what’s next for the industry. Happy fundraising!

P.S. For those at the session, click here for a listing of charity registration firms.

5 Tricks to Increasing Persuasive Powers: AASP Session

Jennifer Liu-Cooper and I had a chance to present some ideas on becoming more persuasive in the office place. Have a look here and let us know what you think.

 

Mind the Gap: Integration Ideas at BBCON’s Higher Education Forum

The BBCON conference brings together professionals from across the globe to discuss how to leverage technology (and related processes) to support our vital missions. Within each fundraising team, integrating functions and increasing results requires thoughtful collaboration and shared understanding. Technology, communication and training, and organizational culture issues must be aligned to help the team spin like a top.

Click here for the presentation materials from the forum. And, good luck with your efforts to integrate processes and perceptions.

New Data on Fundraising Operations and Perceptions

Different groups perceive fundraising operations differently, and this greatly affects advancement services.

How do I know this? While it’s an intuitive aspect of fundraising operations work, the data are pretty clear. I completed a study in the last few weeks. The survey is an extension of work I conducted for An Executive’s Guide to Fundraising Operations, which explored how differently fundraising executives and operations professionals perceive their data, reporting, technology, and processes. Here is a summary of those 2011 responses. These show that, on average, operations professionals are more confident in their work than their bosses.

Cannon's study shows the executives aren't as confident in their operations as those doing the work.

Cannon’s study shows the executives aren’t as confident in their operations as those doing the work.

My July 2013 study focused on understanding how those with and without a “portfolio of prospects” perceived their organization’s operations and their inclusion of operations in their work. A group of 334 respondents (two-thirds of which maintain a prospect portfolio) shared their perceptions.

The results mirror the responses from 2011. In general, those with a portfolio of prospects were less satisfied with their operations than those without a portfolio (typically, operations professionals) were confident in their services.

The most interesting contrast in the 2013 study was not simply a difference in confidence (as above), but just how much more confident operations professionals were in their services and their inclusion in strategic planning compared to the satisfaction of their colleagues with prospect portfolios. That is, operations professionals are fooling themselves a bit and, conversely, those with prospect portfolios are likely being a bit harsh. You will also notice much less satisfaction in technology and reporting tools among gift officers than operations professionals. (Click here to find the detailed study.)

Cannon's 2013 study shows that frontline and operations professionals have much different perceptions.

Cannon’s 2013 study shows that frontline and operations professionals have much different perceptions.

So, what do we make of this? Both groups need to take a walk in the others’ shoes. Operations are probably better than gift officers think and could be improved more than operations professionals would like to believe. Communication is essential, too. We need to work on managing expectations, while delivering as solid an operations environment as our resources, hard work, and good thinking allow.

There are more recommended next steps about dealing with this new data in the report. Click here to read more.

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Shining a light on how to think…

This is my favorite quote on the year:  “You succumb to survivorship bias because you are innately terrible with statistics.” The “you” here is the Royal “You”. The author is Dave McRaney. And this gem of a statement is shorthand for saying that most folks could improve how they evaluate situations and make decisions, if they could only apply a more analytic and open lens when thinking. Or, another way to put this is that by only looking at success, one cannot make an informed decision about how to avoid failure. At this is the danger of suvivorship bias.

What strikes me about this post (in addition to simply how much I learned while reading the post), is that in fundraising, most of us suffer from survivorship bias in our decisions:Confident in Success?

  • Staffing: we value those who stayed, when perhaps we lost even better people. I often suspect some succeed over time due to others’ departures more than their own merits.
  • Productivity: we value those generate funds, when perhaps we lost even better opportunities (or solicitors). I am not asked very often to benchmark poor performers.
  • Customer Service: we value anecdotal, one-off feedback, when perhaps we don’t actually hear from the vast majority of satisfied or disappointed donors. I am always seeking actually survey data on satisfaction rather than the “last week we had a call from angry donor” variety (which, while seemingly plentiful, is actually a fraction of a fraction of the potential population).

If the notion of survivorship bias is new to you or you’re due for an intellectual re-boot, read this post. And, don’t think the irony is lost on me that the Internet (and social media, really) is essentially a function of survivorship bias. That is, I only saw this insighthful post and that cute cat meme seen by everyone on the planet this week because 10,000 like it never made it to my Twitter feed. If you have other and better suvivorship ideas, please share.

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Must read for our industry

Have you read Daniel Pink’s “To Sell is Human”? It is a great, quick read about the sociology, psychology, and mechanics of selling (defined by Pink as persuasion, rather than pure sales, per se).

The book (check it out here) presents some terrific tactics for increasing effectiveness of moving others. This book is especially valuable for gift officers and others who are learning how to best engage people. Happy reading and would love your thoughts on how you’ve been most effective at persuading people to move toward your cause.