When corporations fail to invest in their future, we shake our heads and wonder why they’re so shortsighted.
Think of the once-important ice-delivery companies. They didn’t realize they were in the business of providing ice; they apparently thought they were in the business of finding and delivering ice. They might have used their expertise with ice to develop (or at least sell) those new-fangled home refrigerators. But they didn’t, so they were destroyed by the new technology. The minute there was a better way to have ice in the home, everybody shifted to the better way.
How could the ice companies have been so shortsighted? Well, it’s not hard to see why. They had a great thing going, so they never thought ahead, paid little attention to changing technology.
We should look at nonprofits the same way.
Those that don’t pay attention to the changes around them and invest have a grim future ahead. Changing technology, demographics, media use, and competition will chip away at their fundraising revenue until the ground drops out from under them like a sinkhole.
The difference between an investment-oriented nonprofit and one that’s not paying attention can be hard to see. To show you that difference, I’m going to plunge deep into the weeds for a moment…
There are two key performance indicators in fundraising that measure exactly the same thing: return on investment (ROI) and cost per dollar raised (CPDR). Here’s how you calculate them:
- ROI is revenue divided by cost: If you raised $600 from a campaign that cost $200, the ROI is 3. If you raised less than you spent, your ROI would be below 1. It is sometimes expressed as a ratio (3:1), a dollar amount ($3), or just as a number.
- CPDR goes the other way: cost divided by revenue. The preceding scenario, where it cost $200 to raise $600, would give a CPDR of $0.33 — it cost 33¢ to raise each dollar. If you spent more than you raised, the CPDR would be above $1. CPDR is usually expressed as a dollar amount.
Both figures measure fundraising efficiency. They both answer, with some precision: Was that worth it? The actions for improving both ROI and CPDR are the same: you can lower costs and/or you can improve response. Responsible organizations pay attention to both.
I’ve encountered few organizations that use both ROI and CPDR. Anyone could use both, but hardly anyone does. Because I think you’re either a CPDR organization or an ROI one. There’s a fundamental difference:
- ROI organizations tend to focus on improving results — that is, making their ROI higher. They make bolder decisions, innovate more often, and generally have a mind-set that they can and should make their fundraising better all the time. They are more investment-minded.
- CPDR organizations zero in on lowering their CPDR by cutting costs. This fosters a narrow approach and a fear of failure. Vision and innovation come hard and rarely for CPDR organizations. But hey, at least they keep costs down!
Which approach do you think is more likely to wow donors, win enthusiastic support, and uncover new ways to raise funds? Not the organization that’s always looking for ways to do less.
As the old cliché goes, You can’t cut your way to greatness.
Does measuring ROI instead of CPDR make you bolder? Or does having an investment mind-set lead you to prefer ROI? Chicken or egg?
The important thing is that you should focus your thinking and planning on investments, on opportunities, on improvement.
An organization with an investment approach is always asking these questions:
- How will we reach donors we haven’t reached before?
- How can we touch donors more deeply?
- What do our donors really want from us, and how can we give it to them?
They ask these questions, and they seek the answers. They spend time and money seeking them. They find partners that help them invest and think about the future. Of course, you owe your donors and your cause prudent frugality. But be sure to spend your best time and energy investing in donors.
This post is excerpted from my book The Money-Raising Nonprofit Brand.
Thoughts on how what you measure shapes the way you think, and how you can be a more forward-looking and investment-oriented organization? Share your ideas in the comments!