What’s a fundraising efficiency ratio? Why should you track it? And what’s a “good” ratio to try to maintain?
If you’re skimming this article to look for a quick definition, here it is. Your efficiency ratio measures the amount of money you spend on fundraising against the amount of revenue generated by those activities.
Read on for insight into why this metric is important and how to calculate it.
Why Is Understanding My Fundraising Efficiency Ratio Important?
There are lots of reasons to track this important nonprofit metric, but most of them can be folded into two overarching themes.
One important reason to understand your fundraising efficiency ratio is that it helps you understand how your campaigns are performing and can help you identify which fundraising strategies are most (and least) effective.
The other reason is that it can have an impact on how your donors perceive your organization. Your ratio impacts your rating on Charity Navigator and other platforms donors use to evaluate the organizations they might support.
People like knowing their money makes an impact in the world. A poor efficiency ratio means you spend a lot of money to raise a dollar. If donors see that, they might just choose to support another organization instead.
How Do I Calculate My Fundraising Efficiency Ratio?
When calculating this ratio, you’ll first want to tally up all the costs associated with fundraising in your formula. This includes staff salaries, marketing expenses, event costs, and any other direct expenses.
Then, you’ll find the amount of money you raised as the result of those expenses.
To find your ratio, divide the total amount of fundraising expenses by the amount of money you raise.
The Fundraising Efficiency Ratio Formula
Calculating your fundraising efficiency ratio is relatively straightforward—and the formula is straightforward, too!
Fundraising Efficiency Ratio = (Total Contributions / Total Fundraising Expenses)
Your result should be a number that’s greater than 1. A fundraising efficiency ratio of 1 means you’re spending exactly as much money as you’re raising. Any result greater than 1 means you’re raising more than you’re spending. The higher your resulting number is, the more efficient your fundraising programs are.
A Fundraising Efficiency Ratio Example
Not a math person? We understand (we’re not math people, either). Here’s an example that might be helpful.
Say you work for a conservation organization and you spend $3,000 on a fundraising event. The event raises $12,000. To find the fundraising efficiency of this event, you’ll divide the amount of money you raised by the amount of money you spent.
$12,000 / $3,000 = 4
The fundraising efficiency ratio for this event is 4—that means you raised $4 for every $1 you spent. That’s a pretty solid ratio!
Now, imagine you spent $3,000 on the event and raised $3,400:
$3,400 / $3,000 = 1.33
For every dollar you spent on the event, you raised $1.33. You’re still earning revenue, but it’s not as effective an event as the first example. If your ratio is 1.33, you might set a goal to make this event more efficient—you may even decide to try something new entirely!
What Is a Good Fundraising Efficiency Ratio?
As with most nonprofit benchmarks, it’s hard to define exactly what a good fundraising efficiency ratio is. Technically, any ratio over 1 means you’re raising more in revenue than you’re spending.
That said, you do want to work toward being as efficient as possible.
Charity Navigator gives the best ratings to organizations that spend less than $0.10 to raise $1. That’s a fundraising efficiency ratio of 10.
That’s not to say that a ratio that’s less than 10 is bad! An event that raises $6,000 will probably have a ratio that’s lower than a single email campaign that raised $6,000. Running an event requires more time and resources than sending an email appeal. That doesn’t mean you should never run an event.
How Should I Use My Fundraising Efficiency Ratio?
You can use this metric a couple of ways. You could find the efficiency ratio for all of your fundraising activities for a year or specific period. You could also use it to determine the effectiveness of a fundraising event, special campaign, or even fundraising for specific programs.
Take the example of the event that cost $3,000 to put on and raised $3,400. While the event didn’t lose money—you still brought in more revenue than you spent—you may want to look for ways to make future events more efficient.
You could cut back on expenses (or find a corporate sponsor to help cover costs), tweak your ask to be more compelling, or make it easier for donors to give during the event itself.
If your annual fundraising efficiency ratio is high, a single event with a ratio of 1.33 may not be of concern to you. But, if you notice your annual ratio is low, you can re-evaluate the strategy for that event as a way to improve your overall performance. You can also look for other ways to reduce expenses, increase fundraising, or both.
Maintaining a good ratio is key to building a sustainable organization—you can’t grow if you’re spending more than you raise! Track this metric as a way to keep an eye on your development strategy’s effectiveness.
Use Your Efficiency Ratio to Become a More Sustainable Nonprofit
Your fundraising efficiency ratio gives you insight into how effective your different fundraising activities are. Keeping an eye on it will help you understand how your costs compare to the revenue you generate!
When you prioritize fundraising efficiency, it will be easier for you to build trust with your donors, achieve financial sustainability, and maintain a good reputation in your community.
Build More Sustainable Fundraising With Neon CRM
If you want to improve your fundraising efficiency ratio, you may find yourself looking for ways to reduce expenditures without sacrificing the quality of the programs you use. Neon CRM may be able to help you!
The Neon CRM system includes tools for fundraising, donor management, email communications, volunteer management, and more—and that means you can streamline the software and systems you pay for. And, because pricing for Neon CRM is based on your revenue and not the number of donor records in your system, you can grow your community without fear of surprise cost increases.
Want to learn more? Our group demos are a great opportunity to get a full overview about Neon CRM without the pressure of a one-on-one call. Find a date and time that works for you—we’ll see you there!
Join the discussion in our Slack channel on connected fundraising