The operations of any nonprofit organization depend heavily on fundraising. It enables them to raise the money required to support their initiatives and objectives. But fundraising has expenses as well, which might hurt the organization’s bottom line. Because of this, it’s critical for NGOs to comprehend how fundraising expenses are determined and how much money they should allocate to fundraising. How are fundraising expenses determined?
Direct and indirect costs are the two basic types of fundraising expenses. For example, printing and sending invitations, paying employees or consultants, and renting venue fees are all examples of direct costs that are directly tied to the fundraising activity. The term “indirect costs” refers to expenses like rent and utilities that aren’t specifically related to the fundraising effort but are still necessary for the operation of the organization.
Nonprofits must tally up all direct and indirect expenditures related to an event in order to determine the total cost. For instance, if a charity is holding a gala, they might include the following direct expenses: printing invites ($500), renting a venue ($2,000), paying a caterer ($3,000), and paying a band ($2,500). The event would cost $8,000 in direct expenses altogether. The nonprofit would include these indirect costs in the overall cost of fundraising if their monthly rent was $2,500 and their monthly utilities were $500. The fundraising event would cost $11,000 in total.
Depending on the organization’s size, mission, and fundraising objectives, NGOs should spend different amounts on fundraising. Generally speaking, the Association of Fundraising Professionals (AFP) advises NGOs to limit their fundraising expenditures to no more than 25% of their whole budget. Smaller groups, who might need to spend more on fundraising to meet their fundraising objectives, might find that this is not viable.
The objectives of the organization and the kind of fundraiser can have an impact on the profit margin for a particular event. For the majority of fundraising events, a profit margin of 30–50% is often seen as satisfactory. For instance, if a nonprofit organization holds a fundraising event and raises $10,000 while incurring $5,000 in direct and indirect expenses, its profit margin would be 50%. What would be an acceptable fundraising target?
For NGOs, establishing a fundraising objective can be difficult. The objective should be both challenging and doable. Nonprofits should take into account their past fundraising success, the size of their donor network, and the level of support they may expect from their community when determining a realistic fundraising goal. A reasonable rule of thumb is to aim for a fundraising target that is 10–20% more than the total raised the previous year.
Companies that specialize in fundraising can generate large profits from their offerings. Depending on the magnitude and difficulty of the fundraising event, their earnings may vary. While some fundraising organizations take a fixed fee in exchange for their services, others take a portion of the money they earn. Depending on the terms of the contract between the corporation and the nonprofit organization, fundraising firms often receive between 10 and 50 percent of the money earned.
To avoid having a negative financial impact on their organization, nonprofits must ensure that they understand how fundraising costs are determined. Nonprofits can continue to effectively fund their mission and operations by establishing acceptable fundraising goals, controlling fundraising expenses, and guaranteeing a solid profit margin.