Charity Support, Advice, Impact Measurement, Philanthropy Impact – NPC

Can a fresh approach to budgeting cure charities’ fundraising woes?

By Kate Sayer 11 August 2015

It has been sad to see hardworking colleagues in fundraising publicly abused recently. That’s not to say that I don’t think there is something to be fixed—it’s just that I don’t think you can lay all the blame at the feet of professional fundraisers. We also need to consider how the finance processes operate in most organisations and specifically how organisations set budgets.

Let’s take the issue of fundraising performance and how the budget-setting performance might influence fundraisers’ behaviour:

  • Most organisations set their budget for a financial year, despite the fact that the natural life cycle of a programme of activity, product, or promotion might be longer or shorter than a year.
  • The focus on annual performance is heightened by the reported figures in a charity’s statement of financial activities (equivalent to a profit and loss account). In practice, the income shown will have resulted from activities some time before the reporting period. Comparing income to fundraising costs will not lead to meaningful ratios.
  • Too often, trustees and senior managers will focus on the ‘top line’ figures of recorded income, whereas the net income is the important result to monitor.
  • All the above three factors come together in a perfect storm when it comes to setting fundraiser’s performance targets. So frequently fundraisers are measured on short term income targets.

So what? Well, take the example of a fundraiser who has to raise £400,000 of income before the end of the financial year to meet their target. They might:

  • Realise by the end of month ten that they are going to meet the target and so they cruise for the last two months, or deliberately hold back funds raised to ‘bank’ them for the new financial year.
  • Chase up the major donors they have been developing carefully over the last couple of years and give it a final push to get some cash in–achieving a smaller donation than might have been possible if they had been more patient.
  • Squeeze in another mailshot or increase the agency’s targets for the last couple of months to make sure they hit the target.

Taking a new approach

To top it all, the chances are that any sensible person would negotiate their target down to make the chances of a good performance higher. So what are the alternatives?

  • Focus on the return on investment over the life of the campaign. This is the only sensible performance metric that can be used to make comparisons. Clearly some forms of fundraising will have a better ROI than others. Most charities will need a good mix as higher yield activities may require higher levels of investment or higher risk.
  • Judge performance on a relative basis–this means that you do not set an absolute target for fundraisers. For example, set the target that ROI should be a range and increasing year on year.
  • If relationships are more important in fundraising than short term income, measure relationships. For example, it makes more sense to measure the number of legacies notified rather than the income from legacies.

Key to good performance metrics is that the performance measure should be one that the manager can at least influence, even if they cannot control all aspects, and they should encourage the right behaviour.

Kate will be speaking at NPC Ignites, our fifth annual conference in mid-October, on how to break free from ‘business as usual thinking’ and why an innovative strategy requires an innovative budget. Sign up here.