Raising money costs money. And no organization receives every grant or gift that it seeks. A nonprofit needs to be sure up front that it can afford its potential fundraising costs and that the costs are appropriate in relationship to the possible return. Fundraising costs should be a modest part of an organization's budget, but when that organization is starting up or when it's launching a major new fundraising effort, the fundraising costs will rise. Recruiting a new donor almost always costs more than securing a second gift from a past supporter.
From the beginning, the nonprofit will want a system allowing it to keep timely records on all its donors. This system may be a handwritten card file or a complex database. It's important, for instance, that nonprofits remember when they receive grants, how much money they receive, when reports are due, and what kind of reporting is required.
Nonprofits also need to keep information up to date about individual donors: who in the organization knows or knew them, how and why they gave their gifts, and whether any special recognition or invitations were promised to them when they gave. Because nonprofits hope to talk to or keep in touch with these people over time, recording their spouse and children's names, their interests, their business affiliations, and any other pertinent personal information is important.
So the first investment in fundraising may be to acquire a record keeping system. You may also have to budget for the time it takes to keep the system up to date. Current information about fundraising and accounting software usually can be found on the TechSoup Web site. One good, inexpensive option is eBase, a free program that runs on FileMaker Pro. You don't need FileMaker unless you want to customize eBase. Specialized fundraising software is terrific, but it can be quite costly. Consider investing in it when your fundraising depends on large numbers of grants, corporate gifts, and contributions, and when your annual operating budget is $1 million or more.
Some other fundraising activities and their costs include
- Grants and contracts: Most of the cost of securing grants and contracts are labor costs for planning and writing the grant proposal. Some proposals may require videotapes, audiotapes, or slides of past work, which cost additional money. If you need numerous copies, that too is an expense, as is shipping the proposal. Sometimes you may want to travel to meet in person with the agency awarding the money and if that foundation is far from your location, that's another expense to consider. Also, as more foundations are creating electronic application systems, you may need to invest in upgrading your computer systems to be compatible with theirs.
- Nonprofits need to pay attention to a grantmaker's requirements for reporting the results of a project and make sure that they can afford to do the report. Some grants require collection and analysis of extensive data. Some require audited financial statements.
- Individual contributions: Costs related to securing individual contributions stem from time spent by staff or volunteers compiling lists of possible donors, conducting research about those donors, and developing a script for soliciting a gift. Direct mail is another common technique for reaching individual donors and a relatively costly form of fundraising. Expenses may include a consultant to write the mailed materials and select appropriate lists, and certainly include printing and postage. Some organizations hire companies to handle telephone solicitation campaigns.
- Be cautious if you take this step: Some of these companies charge a very high percentage of the money raised in exchange for providing this service while others are reputable and valued by the nonprofits they serve. Another expense that may serve your organization is adding capacity to its Web site so that donors can make gifts electronically.
- Special events: Producing special events can be one of the most expensive ways to raise funds. Spending 50 or 60 percent of the income from an event to pay for costs is common. Printing, advertising, food, and entertainment all cost money. Also, special events are labor intensive. An agency wants to have an experienced volunteer group or staff for special events.
- Planned giving: If a nonprofit isn't familiar with tax laws regarding wills and estates, it will want to employ or hire on contract (or attract as a board member) a planned giving expert. Bringing this person on board can be expensive in the short term but doing so can yield important long-term support for the agency.
- Planned giving works best for organizations that have been around for a long time and show good prospects for continuity. Universities, museums, and churches come to mind. Small, new groups have a hard time attracting bequests.