It was early in my career when I was faced with a challenge every nonprofit will encounter at some point: budget cuts.
As Vice President of Advancement for a university, I was a member of the senior leadership team. And I can remember the robust debate we had on expenses as we wrestled with a shortfall in revenue.
The consensus was a 10% cut across the board, based on the belief that every department should share in the pain of reducing budget.
While I was fully committed to being a team player, I did let the leadership team know that we would need to reduce our expected income by three times the amount of budget cut out of the fundraising program.
After a moment of awkward silence, I was pressed as to why there would need to be such a significant reduction in fundraising income. The answer was pretty simple: When we spend less on fundraising, we raise less money. And conservatively, that difference would be three times the expense we would cut.
After further debate on whether we should protect fundraising from the proposed cuts, the leadership agreed to keep the fundraising expense the same and find other areas to reduce expense.
Here’s the lesson: One of the greatest mistakes organizations make is to look at fundraising as an expense. It isn’t! It’s always an investment. And that’s why one of the measurements of any fundraising program is ROI—Return on Investment.
Every dollar invested in fundraising should be measured by the return it brings to fund the organization. While this isn’t the only measure of success, it’s a significant one and speaks to the efficacy of the fundraising program.
In Dunham+Company’s presentation of the Top Ten Fundraising Mistakes, two of them apply to this issue:
• Believing that you can cut your way to growth. Like any investment, the more you invest, the greater the revenue. The less you invest, the lower the revenue. Obviously, this assumes an effective fundraising strategy is in place. And if that isn’t the case, then that’s a whole other issue!
• Believing that different input will create the same output. It won’t. If you change the input into your fundraising program by reducing your investment, you will reduce the income. It’s like cutting an ingredient from a recipe. If you cut that ingredient, the end product will come out differently than it should.
So when your organization is facing a budget crisis, remember that fundraising isn’t an expense; it’s an investment. And you need to protect that investment to help cure your income deficit. Otherwise, you run a higher risk that your financial situation will only worsen.
By the way, we did pull out of the budget crisis at the university. We were able to effectively invest the fundraising budget that year and had a strong enough return on that investment to get through that crisis and end up on stronger financial footing.
More Insights from Dunham+Company: “Six Ways to FUEL GROWTH for Your Organization”