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Maintaining a Good Fundraising Efficiency Ratio

You probably know what fundraising efficiency is. In layman’s terms – how efficient are you at fundraising? Each dollar raised has a certain amount of money that went into raising it, and the efficiency ratio tells you how much or how little you had to spend.

Nowadays, this is the KPI organizations use to see whether their efforts are paying off. A good fundraising efficiency ratio looks good to donors and encourages them to choose your organization as the one they’d like to contribute to.

If the money is going to benefit someone anyway, it might as well go to an organization that the donor can trust. And these days, that trust is built almost entirely on numbers.

For any nonprofit organization, the best plan of action is to build trust in as many people as possible. After all, more trust means more contributions. More contributions mean a higher efficiency ratio.

Getting one-time donations is hard enough, but it’s even harder to retain donors. As such, a good efficiency ratio may be easy to achieve at, say, the end of a fundraising event. But maintaining it is not quite as easy. Who knows how the next event will turn out?

The outcome of the event itself also does not guarantee efficiency. If you spent a large amount on the event and the contributions only barely managed to cover the costs, then the efficiency ratio remains low.

Why is maintaining it important? Because charity evaluators like Forbes and Charity Navigator use averages of the ratio over a given period. Any drop in the values at even one instance can dramatically impact ratings. Ultimately, if the ratio stays too low for too long, donors may decide to take their money elsewhere.

For a sustainable fundraising efficiency ratio, you need to keep certain things in mind.

The key point is to minimize costs. If the costs are minimized, then they are covered up faster, and there is a larger portion of contribution income to spend on charity work. People like to see the difference in how much you’re earning versus how much you spend, and a larger gap would make your ratio much more appealing.

It’s also a good idea to focus on retaining as many donors as possible. Although it may seem like focusing on fewer large donations is a good strategy, the reality is that this increases the dependence of the organization on these donors. If even one of these donors decides to switch or back out, the large sum they were bringing in is also lost, and the efficiency ratio will plummet.

With long-time donors, you can rest assured regarding funds for keeping the organization’s activities going, and the small sum lost with one donor’s exit will not leave such a heavy strain on your finances.

Of course, no one said it’s going to be easy. A lot of strategic planning will be required from the organization to make sure that the focus is on maximizing contributions while minimizing expenses.