Persuade Your CEO to Spend More on Fundraising with a Convincing Bit of Math
By Steven A. Reed
If you do the math, it’s clear that investing in fundraising operations can really pay off for your hospital.
The payoff can be startling.
Chief development officers may want to take note of the financial logic of the comparison below. They can wield that logic as a powerful argument for why their CEO or CFO needs to boost their fundraising operation.
Let’s compare investing in facilitating philanthropy with investing to build service line volume. Although profit margins vary from hospital to hospital — with many struggling to make 2 percent or 3 percent — for the sake of comparison, let’s assume that your hospital is netting 5 percent from service line operations.
Fundraising costs vary as well. Taking into account development staff time and associated expenses, the true cost can be as low as 20 cents per dollar raised, or less in highly effective fundraising operations. It can also be significantly higher in fundraising operations that do not yield a good return on investment. Let’s assume your hospital’s fundraising operation is running a 25 percent cost ratio.
If you do the math, it’s clear that investing in fundraising operations can really pay off for your hospital. The payoff can be startling.
Based on these assumptions, what’s the result if we invest $1 million to increase service line revenue and another $1 million to increase philanthropic revenue, and both efforts are successful? Through philanthropy you need to bring in $4 million in gifts to put $3 million on the bottom line. Through service line operations, you need to earn $60 million in revenue to get the same bottom line results.
So if you put a fundraising performance improvement initiative in place, and it yields an additional $4 million in philanthropy, you achieve the same bottom line impact as increasing other revenue by $60 million — or even more, depending on the service line’s operating margin and the hospital’s fundraising costs.
Whether you are fundraising in a hospital setting or raising money for another kind of NPO, the solution is the same: a multiyear fundraising business plan presenting a strong performance improvement program, a credible financial pro forma, and a discussion that builds confidence in the strategy and shows a diligent assessment of risk vs. reward.
But don’t get trapped by trying to make this happen as part of the annual budget submission game. That won’t work. Real, exponential performance improvement — the kind worth investing in — doesn’t happen within the scope of a year. It takes a three-year plan, just as if you are getting ready to undertake a major campaign (which, by the way, isn’t a bad way to culminate such an improvement effort).
Real, exponential performance improvement — the kind worth investing in — doesn’t happen within the scope of a year. It takes a three-year plan.