Monday, May 5, 2008

Indirectly Costly

It’s that time of the year (well, one of two) when nonprofits are busily engaged in their annual or semi-annual “fundraiser.” It won’t surprise those who know me to read that using special event and fundraiser in the same sentence is an oxymoron or that I believe that the two are anything but synonyms. It’s not that I’m against special events…exactly. I just don’t think they are cost effective ways to raise money.

Events, to my way of thinking, are wonderful for bringing people to your organization’s table, to thank donors, to gain recognition. And if you are going to have a special event, I think it makes sense to try to earn some money from it. But I think that organizations are fooling themselves if they think that an event is a great, or even a good, way to raise significant amounts of money.

“But we do well,” I am constantly being told by organizational leadership. “Our events bring in…..” and then some amount, generally a sizeable percent of the operating budget, is mentioned.

“Net or gross,” I always ask, though I know the answer will always be “net” even if the person with whom I am speaking doesn’t have a clue. So my next question is: “That’s net of your direct costs, right? What about your indirects?” And generally I get a blank stare.

Which is why so many otherwise intelligent people really believe that special events are a good way to raise funds.

Direct costs are those that are directly and only connected to your project, which in this case, is your event. It’s what you pay for invitation design and printing, the flowers on the table, room rent, the meal, the honorarium for your emcee. If you’ve hired a consultant to work only on this event, whatever you pay that consultant is a direct cost. And typically, nonprofits add all these expenses up, subtract that total from the total of what was brought in and voila, you have your net profit.

But as we all know, the devil is in the detail, and the detail that most nonprofits ignore is the indirect costs of their “fundraiser.” Just as you would assume, these are costs that cannot be laid solely at the feet of this event. So, the salary of your executive director, who does so much more than this one event, isn’t counted. Not even the percent of time she spends on the event. Likewise for every other staff member in your organization. But the truth is, these are real costs of your event and to your organization. And if you want a real accounting of your special event, you must include these expenses.

Salaries (and benefits, by the way) aren’t the only indirect costs you are incurring. Do you use the office phones, copier, printers? Don’t think , “Oh, we are already paying for these things so they don’t count.” Couldn’t you be using all these for other purposes?

Which brings us to another, very real and generally uncounted cost of all special events—opportunity costs. In economics, this refers to the cost (or the benefit) of what you might have chosen to do instead of what you did chose. Figuring out that cost is extremely difficult. Perhaps you could realize more dollars by focusing on major gifts, but perhaps, also, you will have lost some very real benefits of bringing new people to your table.

The point is not so much to make an exact accounting, but to be aware of your options and to consider them from all sides. Just because you’ve been doing an event doesn’t mean you must always do one. Or that you must always do it in the same way.

The point is to know what your real costs are, and to make decisions that pay for your organization.

Janet Levine is a fundraising consultant. She can be reached at jlevine@levinemorton.com. Her online grantwriting class is available at www.ed2go.com/courses/ggr.

1 comment:

Austin said...

Great post. I'm new into the non-profit world. I've worked in them, but never really took interest into the fundraising aspect. Our company just launched this turnkey fundraising tool, and I've been contacting different non-profits and sharing our idea. However, there seems to be a lot of opposition and hesitation. I know it's hard time for the non-profit world. I'm just totally bewildered. It's literally free money, with no catch, no ties, and no one is biting.