“We want to raise one million dollars.” I hear this so often that I may run into the sea and head for the proverbial “Gilligan’s Island” to hide.”
“Why one million, I ask, as opposed to two-million or $500,000?” What I usually learn is that the goal is just a round number the exuberant administrator gravitated toward. It feels large, it looks shiny.
Instead of leaving your fundraising goal to chance, here are five-steps to ascertain exactly how much revenue you need.
A real fundraising goal must, well, be REAL. Follow these five steps to set your own goal.
- Create a budget. Creating a budget seems rather basic, but it’s rarely done for expansion dreams or new initiatives. Your budget is the basis for your revenue assumptions behind the opportunity you seek to make a reality. For example, one nonprofit we recently worked with had talked about their need for more student scholarships to bring in talented low-income kids to their arts program. The conversations had been going on for five years! But they had not done the math behind that dream. They did not know how much revenue was needed to make those scholarships a reality. I suggested that together we create a budget behind the assumptions. We talked through the projected costs and devised a plan for twenty new scholarships in year one, and five more in each year thereafter. That budget gave us the basis for making a short, powerful case for support video to use in major donor interviews and test the donor’s interest in making a significant gift.
- Did you add in the cost of fundraising? Adding the cost of doing business into your fundraising goal is usually overlooked and that’s a tragic missed opportunity. In broad strokes, fundraising costs are generally about 20% of the goal if done well, so for a $500,000 goal, add $100,000 making the total fundraising goal $600,000. By including the cost of fundraising your nonprofit is “made whole” and your real costs of doing business are covered.
- Did you remember to include donor recognition costs? Donor recognition is a celebration of the organization’s relationship to a particular donor and to philanthropy in general. It is as much about the role philanthropy plays in the success of the organization’s mission as it is about expressing gratitude to the donor. The scope of “donor recognition” is broad. Recognition can mean a letter; an event; items given to donors as tokens of appreciation; or any variety of donor listings, including formal naming of spaces, programs, faculty positions, endowed funds, research funds, fellowships, and scholarships. Donor recognition can be a costly endeavor; budget accordingly. Signage costs should be built into capital project budgets. Special events often have their own budgets or line items. Most organizations allocate 8 to 14 percent of their total annual budget to full-scale, organization-wide Donor Recognition. If your budget is $500,000, you would typically set aside about $50,000 for annual recognition. When estimating recognition budgets, consider the number of Donors to be recognized and your organization’s size. The larger the organization, the bigger the budget should be, since there will be more centers funded through philanthropy. For capital campaigns, the budget for recognition should be between 10 and 20 percent of the amount raised, depending on how many Donors you’re recognizing and the dollar-level of gifts you’re trying to raise. A capital campaign is a great time to put an overall Donor Recognition system in place. Donors will appreciate the time and thought that goes into recognizing their gifts. Donors named on other plaques or recognition pieces will be excited to learn about the “upgrade” and will likely want to be transferred to the “new” recognition wall, often increasing their giving to do so.
- Does the goal include sufficient reserves? As you probably know from reading my past posts, the US Better Business Bureau allows you to have operating reserve funds up to three years of operating expenses. Yes, three years. So, if your organization’s annual budget is $8 million, you can have unrestricted reserves of $24 million. The larger the nonprofit, the closer one should aim to having a significant reserve. To raise unrestricted support, as well as to provide additional funding to build infrastructure capacity, a Cash Reserve & Capacity Campaign, in the tradition of Capital Campaigns, is recommended. A minimum standard that I use is budgeting three months of operating costs. In the case of the nonprofit that I mentioned above, our scholarships’ goal was $10 million over five years, so we budgeted a $500,000 cash flow reserve.
- Does the goal cover cost of living increases, and unexpected costs increases like tariffs on construction supplies? Factoring in a 3.5 to 5% cost of living increase is reasonable and realistic.
If you follow these five steps, you will determine your real fundraising goal. Try it and let me know how it goes for you. I’d be glad to review your draft budget and give you my input.
I suspect that this level of reality may be hard for many people because underlying it is the worry that you can’t raise the funds. The fact is that there are many taboos operating about money, and unless you are aware of them, you will self-sabotage your fundraising and not achieve the real results you want. Give me a call to talk about this.
Also you can use this exercise to determine the size of your annual fund, your proposed campaign, or any expansion plan you may have in mind. Good stuff believe me, especially because high goals always raise larger gifts!
We welcome your comments about this post on the LAPA blog.