Setting goals is a job of the board. Establishing the parameters for how much raising money should cost is one of those goals. But, is there a specific acceptable percent cost for raising money that boards should reference?
I am now amazed to learn just how many different opinions there are about how much (what percent) nonprofit boards consider as "acceptable" to raise funds or even administer their nonprofit. The answer to the percent question of course matters to donors (because others tell them it should matter) and more importantly to Regulators like the IRS and State Attorney Generals. But what is an acceptable number, particularly when it has to do with raising funds feels to me more of something out of the gut than matter-of-fact.
As an aside, I am of the opinion that there is no such thing as overhead, aside from fundraising that is. Programs and services need managers and back-room support and the total cost of a program should include these costs. Similarly, the cost of an executive director can easily be prorated across programs based on my thinking that without an executive, those functions for a program would go missing. An executive like the rest of the back-room is just the cost of doing business.
But what about fundraising? Is there some magical number that should be applied to say when spending to raise money is "too much"? A Washington Post article today reviews the demise of a group (not a 501(c) 3) that has been staging annual grand fundraising events. The group, called CharityWorks has been pretty much operated by one woman who is extremely well networked if no longer rich. The fiduciary agent for CharityWorks is the Community Foundation (a practice pretty common throughout the country). And, CharityWorks has only done one thing really well: put on at least one annual gala and then redistribute the money it raises, usually in the form of $100-250K gifts to selected partners on whose behalf the annual event has been conducted. The Post's story focused on the announced decision to suspend the event. But in the article there was talk about what is an appropriate percent cost to raise money:
According to philanthropic accountability organizations, a charity should use at least 65 percent of any money raised for the charity’s stated mission. Most reputable event planners, said one veteran Washington fundraiser, will not work with any charity that spends more than 50 percent of donations on salaries and other expenses.
I did some quick research and according to an article by the Association of Fundraising Professionals (AFP) a nonprofit board should be mindful of costs and set goals. Deeper within the article, "acceptable" costs ranges looked something like the 20-25% target but again, the article emphasized that purpose is everything and boards should consider goals like the cost of getting a first-time donor different than conversion costs etc.
Now the reality is that the beneficiaries of CharityWorks had no fundraising cost on their part. So the only decision left to the board: accept the money. To be honest, I'm really not quite understanding why such a big deal was being paid to a group that did good (albeit at a pretty hefty cost) for a number of providers. But maybe that's just Washington, DC.