Improved ROI during the pandemic concealed collapsing fundraising

A recent study of arts and cultural organization fundraising found that early in the pandemic, some organizations experienced a marked increase of return on investment (ROI) while at the same time revenue just barely edged upward.

See the report at SMU DataArts, Studying Early Pandemic Data: Less Fundraising Expenses Led to Higher Returns for Arts and Cultural Organizations. Here’s the basic finding:

  • In 2019, every dollar spent on fundraising raised $6.22. This was close to the several previous years.
  • In 2020 every dollar spend on fundraising raised $7.35 — a 16% increase.
  • In the same period, donated revenue increased by just 1%.

As the report notes, this change was driven mostly by fundraising expense reduction.

Hooray?

I don’t think so.

But higher ROI is better, isn’t it?

Not always. In fact, rarely is increasing ROI a clear sign of success in fundraising.

Because you can’t budget-cut your way to greatness. Show me an organization with high-ROI fundraising, and I’ll show you an organization that’s likely declining in number of donors, donor upgrading, and number of donors making charitable bequests.

The easiest and most dependable way to spend less on fundraising is to do less fundraising. Cut direct mail appeals — especially acquisition — and you’ll immediately save a lot of money.

At the same time while you’re saving money, your dollars-per-donor will likely hold steady or improve. Because while your overall donor file is eroding, the donors you keep are the top donors: those giving the most and most likely to keep giving.

ROI loves that.

But your future revenue is screaming as the car zooms toward a cliff.

During the pandemic, a lot of organizations saved a lot of money by shutting down their fundraising for a short (or long) time. Many congratulated themselves on their improved ROI while overall revenue held steady.

But organizations that kept their head and stayed in touch with donors and asked them to help during the crisis — they saw ROI stay the same. Or even drop.

But revenue skyrocketed.

What do you want: really good ROI, or more money to fund your work?

Because that’s largely a choice you can make.

ROI us a useful indicator of the efficiency of your program and your campaigns. But when you focus on ROI, it can lead you down a destructive path that will undermine your current and future viability.

Higher ROI is not always a good thing. Sometimes it is very, very bad.


Comments

2 responses to “Improved ROI during the pandemic concealed collapsing fundraising”

  1. “But your future revenue is screaming as the car zooms toward a cliff.” Thanks for this, Jeff. It made me smile.
    I think I heard those screams once in fall 2018 when my direct mail response rate plummeted. Six months later, I joined Moceanic and learned how to pump the brakes.
    Thanks for all you do!

  2. “But your future revenue is screaming as the car zooms toward a cliff.” Thanks for this, Jeff. It made me smile.
    I think I heard those screams once in fall 2018 when my direct mail response rate plummeted. Six months later, I joined Moceanic and learned how to pump the brakes.
    Thanks for all you do!

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The future of fundraising is not about social media, online video, or SEM. It’s not about any technology, medium, or technique. It’s about donors. If you need to raise funds from donors, you need to study them, respect them, and build everything you do around them. And the future? It’s already here. More.

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Jeff BrooksJeff Brooks has been serving the nonprofit community for more than 35 years and blogging about it since 2005. He considers fundraising the most noble of pursuits and hopes you’ll join him in that opinion. You can reach him at jeff [at] jeff-brooks [dot] com. More.


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The future of fundraising is not about social media, online video, or SEM. It’s not about any technology, medium, or technique. It’s about donors. If you need to raise funds from donors, you need to study them, respect them, and build everything you do around them. And the future? It’s already here. More.

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Jeff Brooks has been serving the nonprofit community for more than 30 years and blogging about it since 2005. He considers fundraising the most noble of pursuits and hopes you’ll join him in that opinion. You can reach him at jeff [at] jeff-brooks [dot] com.

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