Why nonprofits need to spend MORE on fundraising—not less

The Nonprofit Problem:

It’s a common problem in the nonprofit sector: you’ve got limited funds for programs and a waiting list out the door. Seeing as programs are the means through which you fulfill your mission, you immediately funnel money into them and let the fundraising side of your business (and it is a business, albeit a nonprofit one) starve.

Dan Pallotta, the founder of Advertising for Humanity and a frequent blogger on nonprofits for the Harvard Business Review, says this is exactly the opposite of what you should be doing.

Spend More on Fundraising

Why?

Starving fundraising is like putting Hercules on rations. How’s he supposed to do the heavy-lifting for you, when he’s under-nourished? He may struggle valiantly for a while, but eventually he’ll collapse.

Instead, consider fundraising the core of your nonprofit that you must keep healthy and strong for the rest of your business to grow.

Dan Pallota Fundraising Talk

Dan Pallota talking about fundraising at TED.

In a widely circulated essay Pallotta wrote in February 2012 entitled “Multiplication Philanthropy,” he pointed out the illogic of measuring nonprofits by how little they spend on fundraising, when fundraising is the only way nonprofits can increase their impact. He also lamented donors’ resistance to having their donations support the fundraising effort, calling it “one reason that charitable giving has remained constant in the U.S. at 2% of GDP ever since we have been measuring it. …Donors don’t want charities to spend money on fundraising.”

Further, Pallotta wrote:

The cutting edge [philanthropy] is investment in fundraising. [E]veryone tries to suppress it, invoking a flawed theory of social change that says the less you spend on fundraising, the more you have for programs. That’s true if it’s a zero-sum game. But it’s not. Imagine a $10 million pie with $8 million going to programs and with the 20% fundraising slice taking $2 million away from programs. The last thing we want to do is make that a $3 million slice, leaving only $7 million for programs. But that’s not how it works. If done correctly, the extra million enlarges the pie — substantially. A $10 million pie becomes a $15 million pie, and the $7 million available for programs grows to $12 million.

As Pallotta points out, smart charities invest in fundraising because the money they get back is greater than the money they put in. He cites a Giving USA study, which found that “a dollar invested in a major gift program produces, on average, $24 in revenue. A dollar invested in a direct mail program produces $10. A dollar invested in a special event produces $3.20.”

Domestic Violence Solutions for Santa Barbara County holds an annual Springtime gala that raises tens of thousands of dollars annually. One reason for its success is that the Springtime committee enlists sponsors to underwrite the costs of the event—food, printing, entertainment, etc. As a result of this investment in fundraising, all of the event proceeds go directly to the mission—ending domestic violence. This is an example of donors—sponsors—wisely investing in fundraising—multiplying the dollars available for agency programs.

The Solution

So if you’re a donor who’s found an innovative and effective nonprofit that is really making a difference in addressing an issue you care about, it’s great if you fund their programs. But if you really want to increase their impact, fund their fundraising. That’s “multiplication philanthropy”—getting the most for your philanthropic buck.

Leslee Goodman

Alchemy On Demand

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