Are you having tough conversations with colleagues in finance to secure investment in fundraising? Or has finance already won and you’re putting short-term targets over long-term strategy? By Jenna Pudelek.
These questions formed part of the debate at Fundraising Magazine’s latest Fundraising First Thing event on measurement and looking beyond return on investment. It turned out fundraisers were having these debates and seeking to educate board members and those setting targets, about their fundraising needs.
But it was clear that fundraisers also have a hard time convincing their boards of the continuing need to invest in fundraising during tough times, and that too much emphasis on keeping fundraising ratios high and cutting areas with low-performing ROI can have a detrimental overall effect on income, and therefore services, in the long term.
Discussion focused on the pressure to cut areas of low ROI, but concerns were raised that it was those activities, such as shops and community fundraising, that drive awareness of a charity’s brand and widen its appeal to potential donors in the long term.
One issue raised was that trustees can be proud of their fundraising ratio and reluctant to let go of using figures such as '84p in a £1 going to services' as a tool to attract donors.
Our first speaker Nick Mason, head of fundraising strategy and development at the RNIB, set out the problems he sees in focusing only on ROI and placing financial-year targets above long-term strategy.
“In my view if you tell someone to chase ROI you’re going to end up top-slicing activity,” he said. “If you target ROI you’ll cut poor-performing activity, which means you’ll shrink your base, you’ll reduce your net income and your portfolio ROI increases.”
Targeting net income means cutting acquisition, which spells problems in the long term. “If you target gross income then everyone is a winner, apart from the finance guys,” Mason said.
Mason said he finds ROI problematic on many levels. He says it's important to have more than one metric, specifically monitoring lifetime value and cost per acquisition, discounted into future cashflow.
“ROI has a role if you’re going to look at whether something performs or not, but as long as you don’t use it to drive strategy,” he said. “No one metric should be sovereign.”
A theme that emerged from the discussion following his presentation was that building relationships is key. One delegate said she had set up a fundraising subcommittee to bring together the chief executive and finance director with key members of the fundraising team to talk about their strategy and help them understand the charity’s position from a fundraising point of view.
The rules have changed
Our second speaker, Richard Turner, chief fundraiser at SolarAid, started his presentation by saying: “The rules have changed.” He set out three new rules; that trust is key, that donors are channels and that using donors’ social capital is vital.
“Declining response rates and high attrition are blamed on the recession, but I think that’s a red herring,” he said. Traditionally fundraisers are told to focus on areas of high ROI and drop areas of low. But areas of low ROI can provide great moments of engagement, he said, and that could lead to supporters being your charity’s advocates, which in turn could lead to more support.
Recommendations and your donors’ social capital are key in our online world of customer reviews and multi-million pound fundraising campaigns driven by nominations from friends on social media.
Turner said fundraising should be about “how do we inspire our supporters, not just how do you get money out of them. How do we engage people? We have not really been measuring anything like that.”
Turner has said that a short-sighted and siloed ROI mentality pervades and is dominated by finance, echoing Mason’s concerns that finance departments are winning the debate about investment in fundraising.
Annual reports and accounts
Since writing the feature for the September issue of Fundraising Magazine on measurement, I’ve been thinking about these issues and it’s changed the way I approach charity accounts. I've been looking out for evidence that charities are investing in long-term strategy and putting their missions above tidy spreadsheets.
I’ve found that some fundraisers are having tough debates about investment with their finance directors, and they’re winning. What is harder to find out is to what extent they are investing in and building engagement at the same time as focusing on high-performing areas.
We recently reported on Guide Dogs' annual accounts for the year to 31 December 2013. The charity increased its fundraising income by 8 per cent to £71.4m last year. It spent 28 per cent more generating it, with fundraising costs of £31.2m.
Income was up, at £74.9m, but total expenditure was £85.3m, the sixth consecutive year that it has run at a deficit. The charity said this was the result of “planned investment in fundraising and service delivery growth and is in line with our plans for the future”. The charity is investing in fundraising now to deliver return in future years, its report said.
We also reported on Marie Curie Cancer Care’s annual accounts this summer and highlighted the fact it spent £10m more than was earned in the year to March 2014 and expects to post an even larger deficit next year.
Its income was up 4 per cent to £155m, but it spent £165m, an increase of 13 per cent on the previous year. According to its annual report “opportunities to develop services, and the urgent need for this care” were outpacing growth in fundraising, and trustees had decided to invest in “several profitable fundraising areas” with the expectation this would lead to more income over time.
An ambitious new strategy for growth
I spoke to Fabian French, director of fundraising at Marie Curie, about how the charity measures fundraising and decides where to invest. He said: “We use two main measurement tools, the first is the absolute amount of net contribution and the second is ROI. Every charity could improve its fundraising ROI by taking out lower ROI activities, but what that would also do is reduce the overall net income. The highest ROI activity is legacies, so if we shut down everything else, ROI would go through the roof, but we would lose out on a lot of vital net contribution.”
He said the charity is working on “a really ambitious new strategy for growth and improvement”, which has prompted it to dip into its reserves, but it is in a stronger financial position than ever before. It is also investing in a rebrand to make the charity better-known and understood.
French said the charity has fundraising projections out to 2019 and financial projections through the entire five-year strategy period.
“I don’t think on a single-year basis we are an organisation that likes to plan forward. We’ve seen years in which our ROI has gone down because of strategic decisions to invest,” he said. Marie Curie prunes areas that have below-target ROI and are not considered as having growth potential.
Fundraising income last year, including legacies, was £92m. French said the target for this year is “significantly above that” and will be well over £100m by the end of the strategic period.
Our next Fundraising First Thing event is on the future of direct mail on 13 November. You can book tickets here.
