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The Cost Ratio Dilemma, not just a Fundraiser’s Dilemma

Updated: Jan 23



 

A debilitating dilemma is confronting fundraising professionals everywhere, putting a wet blanket over great fundraising – the negative ‘framing’ of an ‘acceptable’ fundraising cost ratio.


How we think about fundraising cost-ratio has more to do with how we frame it or more pertinently, who frames it.


What matters most to donors, the cost-ratio of their donation or the impact their donation has to change the world for the better?


In countless donor surveys and research on why donors give, if a low fundraising cost-ratio is even listed as a reason why donors give, it’s typically towards the bottom of the list.


What then matters most to For-Purpose organisation Board members, their organisation’s fundraising donor cost-ratio or the impact their donors have on meeting their organisation’s mission?


Let’s frame this question another way … What if we were able to eradicate poverty in the world, cure cancer or save the planet from the worst scenarios of climate change, but to do so would require a 50 per cent or more fundraising cost-ratio?

We need to measure the success of For-Purpose organisations on impact outcomes, not fundraising cost-ratio efficiency that simply misses the point of Why For-Purpose organisations exist.


First and foremost For-Purpose Boards need to measure how ‘effective’ they are at meeting their organisation’s mission. ‘Framing’ means we are aligned to our purpose; measuring effectiveness means we are measuring if we are achieving our goals.

Let’s take a hypothetical example …..



Figure from ‘Giving Hope’ (Roe, Dalton, 2019) Palgrave Macmillan, p. 168, Fig. 10.1 Years to Cancer Cure; Charity Cure compared with Charity Cost Ratio


This provides the evidence for the value statement of curing cancer but spending 50 per cent or more on administration costs.

In this example ‘Years to Cancer Cure’ is framed by curing cancer at any cost.


With the right framing fundraising can accelerate problem solving, making ‘inefficiency’ efficient in the big picture. In the Charity Cure example, one of the outcomes of the right framing is that by finding a cancer cure earlier, at any cost, thousands of lives are saved earlier … right on mission!


In 2016 the Australian charity regulator, the Australian Charities and Not-for-profits Commission (ACNC), issued a groundbreaking media release headlined ‘ACNC myth-busts charity admin costs’, quoting ACNC Commissioner Susan Pascoe:


“In my experience, the biggest myth when it comes to charities out there in the community is that a charity that can say ‘100 per cent of your donor dollar goes to the charitable cause’ is the best charity to donate to.


“All charities need to be using their resources to further their charitable purposes, and carefully managing finances is an important part of that. However, simply having low administration costs alone does not necessarily indicate an effective, well-run charity. Similarly, having higher administration costs does not necessarily indicate that a charity is ineffective and poorly run.


“Administration cost ratios alone are not the best way to compare charities. The most important consideration is the effectiveness of the charity. Are they doing important work for the community and are they making a positive impact? Those are the questions donors should be asking themselves.”

The ACNC correctly points out that administration costs are the wrong measure of efficiency and Donors should be and are looking at the outcomes For-Purpose organisations achieve for their cause as the benchmark of success.


One For-Purpose organisation’s low fundraising cost-ratio costs may in fact mean it isn’t delivering much in terms of programmes, while another organisation may be highly efficient and delivering outstanding results but with higher fundraising cost-ratios.



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