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Fundraising vs. Development Costs – Key Considerations for Non-Profit Organizations

March 20, 2023

Fundraising and development are key to achieving your mission. Are you conscious of how these costs are presented on your annual reports and financial statements? Here are the details.

Fundraising and development are key to any Organization’s long-term success, but it is important to separate the two activities, track their costs and properly report them on your financial statements.

What are fundraising costs?

Fundraising is transactional – you ask for a gift and receive it.

Fundraising costs are the costs of fund-raising activities, which are defined in the FASB ASC Master Glossary as activities undertaken to induce potential donors to contribute money, securities, services, materials, facilities, other assets, or time.

According to Charity Navigator, nonprofits should spend less than 10% on fundraising spending. Charity Navigator also promotes healthy spending on activities because nonprofits that spend less than a third of their budgets on program expenses are likely to be failing to meet their missions. Nonprofits put a lot of work into donor relations and fundraising campaigns. It is important to know if your efforts are worthwhile.

What are development costs?

Development is relational – you are building and developing relationships with potential donors.

Per the FASB ASC Master Glossary, development activities include soliciting for prospective donors, donor relations, and similar activities. An appropriate part of the costs of soliciting donors should be allocated to the development function.

Some key metrics to measure your fundraising and development activities:

  • Cost per Dollar Raised – This is determined by dividing expenses by revenue for the given fundraiser, campaign, or period. You want to ensure the fundraising costs and efforts justify your donations raised.
  • Event Conversion Rate - To calculate your event conversion rate, simply divide the number of event attendees who gave a donation after your event or who increased their giving level after your event by the total number of event attendees. This is a key metric to see if your events are providing future benefit and if you are targeting the right attendees.
  • Donor Retention Rate – To limit donor acquisition costs, you will want your donor retention rate to be as high as possible. Be conscious of your gift acknowledgement process and how often you communicate with significant donors and who is reaching out to them. Lean on your board of directors here, they should be more than willing to reach out to significant donors.
  • Online Performance Metrics – If you are using email campaigns, make sure you are tracking your open and click-through rates. If potential targets are not opening or clicking through your communication, it is time to evaluate why and how you can improve those metrics.

Overall, fundraising and development are key to achieving your mission. You need to be conscious of how costs are presented on your annual reports and financial statements as donors look at these costs. Please contact us if you have any questions on how to effectively present and manage these expenses.

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