There has been more bad stuff happening in the news lately about the fundraising industry.  Recently there was an article by Bloomberg.com news that just trashed a number of non-profits and their telemarketing vendors.  Now, I have always believed that if there is bad stuff going on, it’s good to bring it into the light.  Let’s be honest, there are truly bad fundraising practices out there… no doubt.  And, there are a number of vendors who are taking advantage of non-profits.
However, many of these exposés from “investigative” reporters don’t tell a complete story. The article specifically talks about some telemarketing campaigns that yield very little, if any, NET revenue.  They are mostly lapsed donor reactivation calls, which, if you know the industry, are usually a break-even proposition at best.
So, because these reporters don’t know anything about the economics of fundraising, they take this one tactic and tell donors that their gift of $20 didn’t help anyone, and that, in fact, it went all to the telemarketing firm.
Okay, so while that is unfair and totally false, what’s even worse is how non-profit leaders respond to the allegations that these donor’s gifts are not being used for the mission.  Leaders respond to the article by apologizing, avoiding the real issue, not responding to the reporter (which looks like they have something to hide), and essentially looking like… well… complete idiots.
As you know from reading our blog, Richard and I firmly believe that just using overhead percentage and fundraising costs to evaluate the effectiveness of non-profits is misleading and outdated.  We believe evaluation should move toward impact, results and effectiveness as well as overhead.  Hey, even the big three watchdogs have announced that impact should trump overhead percentage too – albeit ten years late!
But, that being said, donors and the American public continue to use only this metric to judge our industry.  Therefore, instead of dodging the subject or sounding completely defensive, we believe you need to know exactly how to talk about it.
As MGOs out in the field, you meet donors every week who ask questions about overhead.  Are you talking about it correctly?  Are you sounding confident because you know the facts?  Are you about to explain it in a way that the donor understands and is satisfied?  Here are a couple of practical ways to communicate the subject of overhead with your donors that is truthful and helps the donor get the bigger picture:

1. One tactic or strategy does NOT determine how much of a donor’s gift is allocated to program — Let’s say your current overhead and fundraising costs are at 30%. (Make sure you know what it is for your organization.) This means that for every dollar you raise, 70 cents are going directly to program.  That 70% that goes to program is determined when you “pool” all donations together.  That means it’s a combination of large major gifts and little $10 gifts.  You can’t get to 70% without all of them together.  Additionally, the cost to obtain those gifts has to be pooled together as well.  You cannot separate out each tactic or strategy.  For example, to acquire a $10,000 gift it may “cost” the non-profit $50.  That is an amazing ROI.  Does that mean that 99.5% of that particular gift is going to program?  No, 70% is because it is pooled together with all revenue and costs from fundraising.  Or, you hold a lapsed donor telemarketing campaign.  You bring in a $20 gift.  However, the cost to re-activate that donor is $20.  Does that mean no dollars go to program?  No, 70% of that $20 goes to program.  Make sense?  You have to understand this so you can explain this to donors.  You don’t want to be in a situation where a donor reads about your organization’s telemarketing campaign and thinks their gifts are not going to program.
2. Why overhead costs are just ONE indicator of effectiveness — Most of the donors you encounter want to know what percentage of their gift is going to program.  Again, you need to know what this number is.  Then, you need to help them understand why.  That “why” question sounds like this: “Our overhead costs are 30%, because in order to be effective and get the results and impact we desire, we believe we have to hire good people at competitive salaries.  In every for-profit business there is marketing, sales, HR, accounting and a building for employees to work in. We have those same costs which are all allocated to what we call “overhead.”  Without this overhead, we could not run our effective programs.”  This is how we need to communicate overhead to donors.  Every time I’ve personally explained this to a donor who has a little negative energy around this issue, I win them over.  They finally “get” it.

One day, perhaps 30 years from now, you won’t be having this discussion about overhead costs.  Instead, hopefully, you’ll be talking about impact and results.  But until then, you have to be able to understand this issue and how to communicate this to your donors.  When donors get it, they get on board.  When donors are on board, the relationship deepens and good things happen.
Jeff