Fundraising: Controversial Views 2010

A  recent Harvard Business Review article by, Dan Pallotta, controversial author of Uncharitable, had me engrossed, both nodding yes to and shaking my head no. As a non profit strategist and fundraising consultant I could see his point- but…

Pallotta,  wrote the book as a response to media reports about charities that spend $400,000 to raise $1 million; donors who want at least 90 percent of their donation to go toward the cause, and every one in the nonprofit world who doesn’t believe in marketing for fear that donors will consider it extravagant and after all “we’re not a business’. Pallotta pokes holes in the frugal, almost prudish constraints the public expects from nonprofits, everything from bans on paid advertising to substandard wages for nonprofit employees. Yet, if we want the nonprofit sector to do without the successful tactics of the business sector–say, marketing–how can we expect the nonprofit sector to aspire to greatness? How will it ever grow, get results, and reach new supporters? Not only must nonprofits be allowed to use the tools of business to thrive and accomplish their missions, Pallotta believes, the public needs to get over its mistaken fixation on fundraising costs and overhead ratios and paying decent wages. He asks, we consider,  “What has the organization achieved, and what can it achieve with my donation?” He offers stat after stat, comparing the costs of fundraising and the accomplishments it results in- and the 8-15% that non profits spend to change the world, compared to the percentages of overall revenue business does, as ludicrous.

According to Dan, “we need a new normal. A complete rethink of what we should be investing in fundraising. If we are serious about the value of human life, then we have to start thinking about 50-100% fundraising costs…Why would I support a cancer organization promoting its low fundraising investment while cancer remains uncured”? He challenges, “What we are doing is just not working. A world in which 10-15% fundraising ratios are the norm is a world in which our charities are woefully too small to confront social problems on any meaningful scale. If we no longer want to live in that kind of world then we need to get used to a new one. Not a 15% world, but a 100% world. And by asking donors a simple question- would you rather feel good about next to nothing getting done, about these social problems persisting into eternity- or would you rather see us eradicate some of these problems in your lifetime?”

Well Dan, to some, those are fighting words. So I thought I’d get a few opinions, to see who agrees or not and started with my colleague and co-author,  Margaret Damen, a philanthropic advisor, financial planner, and fund raising consultant, shown here with Dan at a PPP conference she attended and  that  Dan spoke at- and she had points of both agreement and disagreement. “Non-profits are in fact handicapped because of the restraints placed on them. Yes, it’s unfair as they can’t use all of the tools of capitalism. If you spend too much on fund raising your hands are slapped.   Nonprofit staff is often not compensated for success…”   

She went on to say, “Non profits, for instance don’t have research development expenses. We’re expected to do our best to change the world often with very little resources. We don’t have the money to get the customers in that business does.   Sometimes these restraints undermine our potential and certainly our ability to raise funds to accomplish our mission. But we’re not selling widgets here. We don’t have stockholders who are interested in the profit at the end of the day- we have stakeholders and it’s not about the profit. Non profit folks are not all motivated by the same carrot, and in most cases it’s not about the money, it’s the mission. We can’t compartmentalize and just say we should run ourselves like a business. That’s not what we do. People give to the mission; they’re not buying a product. You can’t compare costs of fundraising to costs of sales. Maybe we need to revisit our model, but certainly not as drastically as Dan suggests.”

The other side of the coin was expressed by Jean Block, President/CEO of Social Enterprise Ventures, Albuquerque. Jean is the author of… Fast Fundraising Facts for Fame and Fortune and The ABC’s of Building Better Boards. Her work:  implementing social enterprises in non profits so they have an income stream other than what is generated by fundraising. Jean’s views, “Nonprofits are traditionally so slow to accept and adopt changes, especially in fundraising. It is so much easier to send out the same old messages in the same old way…it is less threatening than being a change leader! However, everything in our world has changed – dramatically – in the past 5 years. Nonprofits have got to get out of ‘charity think’ and into running themselves as tax-exempt businesses…because that is what they are!  Applying sound business principles to nonprofit management will reap huge benefits. For example, if every nonprofit did extensive market research and feasibility studies on their current programs and services, I promise many (if not most) would discover, new efficiencies, opportunities to collaborate, to outright discontinuing certain of their programs and services.  Habits are hard things to break”!

I asked Jean, “What can n/p do to be more effective fundraisers- given their limitations and the fundraising percentages they are held so stringently to”?

“Here again”, she said, I believe these ‘fundraising percentages” are self-imposed!  Nonprofits are out there bragging about their low overhead (and probably computing these numbers creatively to appease their self-imposed guidelines, or to compete with other nonprofits, etc.)  I agree with Dan that nonprofits need to educate themselves and then their donors about the successes to be had when more emphasis is placed on solving the problem. Again, most savvy for profit businesses know that in tough times, you need more and more emphasis on sales and promotion. But all too often, nonprofits cut back on the most important sales effort – their development department”

And coincidentally , just as this is ready to go to “press’, a new study, cited in The Chronicle of Philanthropy, addresses this very same issue re  the costs of fundraising(Sept. 14, 2010). “Nonprofits are under relentless scrutiny for their fundraising costs,” notes Heart of the Donor study author Lisa McIntyre.  “The questions on costs tell us that what donors want more than anything else is value for their money.  Spending money on salaries is fine, as long as your leaders are effective.  If you spend more on fundraising, it’s fine as long as it effectively raises more money for the work.”

The article goes on to say,”Many surveys and donor comments portray people as wanting organizations to spend less money on fundraising (if they spend anything at all). However, when asked about fundraising costs in terms of impact, donors clearly favor spending more to make more.

According to a survey conducted in June, people are almost twice as likely to be on the side of spending a lot to bring in a lot as compared to spending little to bring in little. Where organizations may be lacking is making sure donors understand value, rather than just perceiving expense.

People also want to give to charities that spend money on good management.  Given a choice, the respondents preferred organizations that hire top-quality managers, even with higher salaries, over hiring less experienced managers and spending fewer dollars on salaries. 

An even greater percentage would rather support an organization that spends more on fundraising and brings in more money to help the cause than would support an organization that spends little on fundraising but raises less money.  Only 28 percent would opt for efficiency over effectiveness”.

Considering the times, perhaps we should be paying heed  to what the article has to say, and maybe Dan’s fighting words aren’t so far-out after all. It’s not easy… to meet your mission when the investment you are allowed to make in fundraising is so low; eventually, if there is little or no money coming in, there is little or no program going out!  I think that every nonprofit should carefully examine their revenue sources and diversify as much as possible. Social Enterprise, or earned income, is becoming more accepted in the nonprofit environment. Launching a successful social enterprise requires a nonprofit to learn and apply sound business principles such as market research and feasibility studies, costing analyses, sales planning and business planning. When applied to total nonprofit agency management, these skills will strengthen the entire organization!

Dan’s article and book has sparked some heated debate in the non profit world and that’s not all bad. In fact as, the Chronicle article;   Margaret and Jean have mentioned,  non profits need change and new models if they are to continue serving on the level they need to in the future.

Thanks for joining us. We’d very much like to hear your views and keep the conversation going.

 Niki