It’s incredibly difficult to be smart about opportunity cost.
There’s just something in our brains that push us toward bad decisions that cost us dearly.
When we overcome that innate human shortcoming — that’s when we make amazingly smart decisions that can transform situations around us.
What is the opportunity cost when we’re talking about fundraising?
I’ve always loved the way the great Mal Warwick put it:
“Opportunity cost is the money you would have raised if only you’d done things right.”
It’s money you never see, so you don’t have to record it as “lost.” You can ignore it.
But it’s lost money all the same.
Opportunity cost really piles up when it comes to bequest fundraising. Let me give you a quick calculation that can help you quantify the monetary difference between doing it right and not doing it at all.
It’s A x B x C = D.
A = The number of your donors who have given 2 or more gifts, and at least one of those gifts was made in the last 18 months.
B = Your successful pledge rate. This is the big variable, the number you can change by what you do or not do. It most likely is somewhere between 0.01% and 5%.
C = Your average bequest. For US charities, it’s around $35,000. If you don’t know your average, this is a good number to use.
Multiply those three numbers, and you’ll have the value of future bequests to your organization.
Let’s play it out with these assumptions. You can adjust these to your realities:
Here’s how it looks for an organization that has no bequest program or does almost nothing to cultivate bequests:
A = 10,000 donors who’ve given 2 or more gifts, and their last gift was within the last 18 months
B = 0.01% successful pledge rate (very low because you aren’t actively seeking bequests)
C = $35,000
D = $350,000 in future bequest income
Ok. Not bad for doing nothing. And a lot of charities skate along like that, seeing that $350,000 as a kind of random windfall. They’re happy with it. They’d be a little less happy if they thought about the opportunity cost they’re paying for doing nothing!
Here’s what it looks like for an organization that has a not-terribly-effective bequest program. They’re consistently doing something to encourage bequests, just not the most they could:
A = 10,000 donors (that meet the criteria I’ve listed above)
B = 1% successful pledge rate
C = $35,000
D = $3.25 million in future bequest income
So the opportunity cost of doing nothing about bequests, as compared to doing something (though not a great job at it) is $2.9 million ($3.25 million minus $350,000). That’s nearly $3 million that will never go to your cause. It’s not lost in the sense that you had it and it disappeared, but it truly is lost because you could have had it.
Now let’s look at a well-run, effective, consistent bequest program:
A = 10,000 donors
B = 5% successful pledge rate (high, but completely achievable; some organizations do even better)
C = $35,000
D = $17.5 million in future bequest income
That’s a more than $17 million cost to doing nothing.
This is not “fake money.” It’s money that can come in the door if you do the right activities.
Or won’t come in if you don’t. CEOs get fired (or jailed) for losing that much!
But because it’s opportunity cost, there will be no penalty to anyone.
So my question to you, smart fundraiser, is this: Are you interested in that completely achievable $17.5 million in revenue (or whatever your equivalent is)? Or are you okay with letting it float away like a bit of dust on a breezy day?
Oddly, most people let the revenue float away.
I don’t think that’s you.
That’s why you are serious about bequest fundraising.
Here’s the best thing you can do to jump-start an effective bequest fundraising program: Click here to find out more about Christiana’s online course, Your Complete Roadmap to Raising Money with Bequests.
* Note that income stated is illustrative only and is not reflective of actual results. Your level of success will depend on many factors including, but not limited to, your background, experience, time allocation, budget, database, risk management as well as massive and consistent effort and action devoted to the program.