Luxury or Necessity?

In the last eight weeks, 36.5 million Americans have lost their jobs. April’s unemployment rate registered 14.7 percent. Job loss was roughly double what was experienced during any similar time period in the Great Recession. For those still employed, anxiety abounds as leaders at impacted institutions ponder making difficult decisions on ways to “cut back” or “re-focus” resources that have become (or projected to become) more limited.

Advancement professionals are certainly not immune.

When leaders are faced with resource allocation decisions, often their logic is simplified to discerning between two simple concepts: What is a necessity and what is a luxury?

How do you and your Advancement colleagues fit into that answer?

Another way of asking this question: Are you viewed an expense or a revenue-generator? At many places, it is expense-cutting time.

Regardless of how the question is framed, it is asked far too often about Advancement at any given institution. From my view, the answer is crystal clear: Advancement is an institutional necessity.

But how do we get this point across? How do we show our value to the bottom line?

If you haven’t developed a set of key metrics that quantitatively describe you and your team’s value, there has never been a better time to start.

It can be as simple as providing a refresher on the revenue streams available to your institution and reminding that “gift revenue” is one. In most cases, this list is small: tuition, fees, room and board, endowment earnings, and gift revenue are the common ones at educational institutions. With significant decreases in invested assets, we know which direction endowment earnings are going. For many, enrollment projections may also be going in the wrong direction. That leaves philanthropy.

Can we create a written plan that projects growth? Or one that maintains current gift revenue results while other revenue is decreasing?

What about a “dashboard” report that shows the tangible impact of Advancement on the institution’s bottom line? Providing this information is the best remedy in shifting the perception of your work from “nice-to-have” to “need-to-have.” And it might even save jobs.

Here are some standard metrics that quantitatively show the value of your Advancement program.

Return on Investment (Gift Revenue/Expenses)

Return on investment measures the effectiveness of every dollar you spend on fundraising. It is calculated by dividing the gross amount of philanthropic revenue generated by the total expense required to generate that philanthropic revenue. The return on investment calculation measures the total philanthropic yield for every dollar expended. If the outcome of this calculation is greater than one, the investment produced a return.

Cost per Dollar Raised (Expenses/Revenue)

Cost per dollar raised measures the revenue-generating efficiency of your fundraising. It is the inverse of return on investment and is calculated by dividing total expenses allocated to fundraising efforts by the total philanthropic revenue generated from these efforts. As opposed to return on investment, cost per dollar raised calculates the total cost to yield a single dollar of revenue. If the outcome is less than one, the expenses produced a return.

Major Gift Potential

Sometimes, showing the cost of not taking action is enough to sway decisions. We know the cost of inaction in Advancement work — not having staff meeting with prospects and cultivating major gift support — is unrealized gift revenue. But have you quantified that potential? Here are ways to do that.

  • Number of major donor prospects (those screened as having the capacity to give $25,000 or more)
  • Total gift potential from those major donor prospects (the total philanthropic support that is available and can only be realized through visits from Advancement staff)
  • Number of major donor prospects under cultivation & total gift potential
  • Number of major donor prospects ready to solicit & total gift potential

There are many other ways to quantify the value of your work. Hopefully, this helps you get started. Your work is too important to be viewed as just an expense.