A How-To Guide for Setting Fundraising ROI Benchmarks

It’s tempting to celebrate victories in fundraising by just looking at dollars raised, but don’t forget to measure your return on investment . If you’ve been around the block in fundraising, you’ve probably heard this phrase, also referred to as your ROI.

ROI is essential to understand as it’s important to measure the dollars raised and how much it costs to raise those dollars. The lower the cost, the greater the funds that return to the mission. Or the higher the cost, the more money you should expect to raise to fund the mission.

Serving the mission is why we are fundraising, after all!

Fundraising ROI benchmarks are a data set that can help you and your board understand how cost-effective a campaign is. For the sake of this article, we will focus on direct mail appeals.

To set fundraising ROI benchmarks for your nonprofit fundraising campaign, it is important to define ROI, calculate ROI, improve fundraising ROI, and use the data to strategize for future campaigns.

How to Calculate Fundraising ROI

To calculate fundraising ROI, you must understand your “investment” and “return.”  The investment is the expenses for the fundraising campaign or how much money you spend. The “return” is your revenue, or how much was raised.

Calculating every expense related to fundraising operations can take time and effort. Focus on direct costs for the campaign, such as:

• Cost for print and postage of the direct mail appeal
• Marketing and advertising costs related directly to that campaign
• Estimated cost of staff time spent on the campaign – think the time it takes to prepare, write, and segment the letters, emails, and posts to social media

To calculate ROI for a direct mail appeal, you don’t need to calculate the time leading up to the campaign that you consider cultivation or relationship-building with donors. The time spent in cultivation may be spread across many campaigns and fundraising efforts.

Once you have calculated both the costs and dollars raised, a simple formula will give you the return-on-investment percentage for that campaign.

1. Subtract expenses from dollars raised
2. Divide the difference by the amount spent
3. Multiple by 100 to get a percent

For example, if you raised $100,000 and spent $25,000. Your ROI is 300%. This is a very successful campaign. Direct mail appeals can have a great return on investment if done correctly. Events can sometimes have a higher cost to raise a dollar amount or lower ROI.

Some nonprofits need to remember to include staff time when calculating ROI on events. Remember, staff time is one of your most precious resources.

It is essential to understand fundraising ROI benchmarks, so your team can determine how to change or end low-performing campaigns or events.

How to Improve Direct Mail Appeal ROI

Once you understand ROI for direct mail appeals and have set fundraising ROI benchmarks, you can begin to take steps to improve this metric.

To improve ROI on a direct mail appeal, begin by making sure you are communicating with the correct donor segment. Set a standard for how long you send a donor an appeal without receiving a gift.

If a donor has yet to respond to an appeal in several years, it may not be worth the expense to continue mailing to them. You may move these donors to a different donor segment and try a new strategy with them. Or you could redirect those expenses to a separate area of fundraising that could yield more return.

Another way to improve fundraising ROI for direct mail appeals is to set the right ask amount for every donor. Automations like AskGenius can help you do this – and it’s a low-cost service that generates high returns.

Automation can help decrease staff time and raise more funds for your next fundraising appeal.

Use Fundraising ROI Benchmarks to Improve Success Over Time

When looking at the return on investment, you must set a fundraising ROI benchmark. Calculate the ROI for your last direct mail appeal and then use it to compare performance year-over-year.

Remember to include return-on-investment or ROI goals when planning. It may be tempting to only look at dollars raised yearly, but that doesn’t show the whole story. Of course, your board of directors is delighted when you raise more money but help them understand that ROI is even more important than dollars raised as a stand-alone metric.

A campaign with 300% ROI can be better than a campaign where you raised more dollars but had only 125% ROI when you accounted for expenses.

Realizing Limitations of ROI in Fundraising

Not every part of fundraising can be boiled down to ROI as easily as direct mail campaigns. We know as fundraisers that sometimes the fruit of labor will not be realized until much later down the road – think estate gifts!

It can be tempting to use fundraising ROI to “bless and release” that tiring annual event that the board chair refuses to get rid of – but make sure you fully understand what else you might be losing. Events can sometimes be used as cultivation or “friend-raising” events. This type of event may not fully fit into the fundraising ROI benchmark.

Consider measuring other data for events than just the cost to raise a dollar. You might look at new attendees gained, first-time donations, or the return of lapsed donors.

Set your fundraising ROI benchmarks today. The data gained will delight your board and help improve the effectiveness of fundraising campaigns. You may be surprised to learn which fundraising campaigns have been most successful and which need a minor adjustment.

To learn more about setting personalized ask strings through AskGenius, which has helped organizations achieve over 1,000 percent ROI, contact the AskGenius team for a demo today.