Every nonprofit is familiar
with the capital campaign that seeks to fund some bricks-and-mortar goal. In
this post, I propose that you research, design and implement a campaign that
has fund-raising for “soft” capacity building as its goal.
What is the definition of “soft”
capacity? To put it simply, it’s the
money used to pay the bills and fund administrative costs. It’s the money that
buys software, ink, and toilet paper, or pays administrative salaries.
Far too many nonprofits try
to pretend that they are somehow able to fund administrative expenses without
actually asking for the money to do so.
They try to “sell” their programs and hope that some of the money will
slop over so they can pay the phone bill. That’s the accepted model, and it’s
one that I spend hours helping clients design, simply because they can’t or won’t
acknowledge that if they had better infrastructure, they would be far more
effective in accomplishing their mission. Even if they do acknowledge it, they
can’t find a way to get funders to support these “non-program” costs.
If your nonprofit operates in
that mindset, I really can’t blame you. There is an obsessive focus by grant
makers and even major donors on reducing the percentage of the acquired funds
spent on overhead, so that the nonprofit can say, “92% of all money raised goes
directly to the service recipients”. Even worse, the nonprofits themselves
actually try to run their business that way. The idea of strategic and
financial planning/forecasting just never enters into their plans for survival.
Trying to pretend that
purchasing toilet paper and printer ink isn’t a part of your service delivery
is like trying to pretend that being bitten by a rattlesnake won’t affect your
health. In both cases, the outcome could be fatal.
Sometimes, these costs can be
allocated directly to a specific program. One mistake I see often is underestimating
the cost of putting on an event. Many times, the nonprofit will report that
they raised X dollars, yet at the end of the year, there was much less than
that actually used as program input.
Let’s examine a typical
nonprofit fundraising strategy, the “event”. The nonprofit decides to hold a
fundraising dinner at a local hotel dining room. The planning committee sets a
gross target of say, $25,000. They factor in the cost of the physical venue,
the cost of printing the invitations, and the food costs at $10,000, and
project a net “profit” of $15,000. The plan is to sell 25 tables at a cost of $1,000
per table, to arrive at a 33% profit. Putting it another way the nonprofit
expects $1.50 in revenue for every $1.00 spent. Unfortunately, that projected
$10K is NOT the true cost of the event. What about the “soft” overhead?
What percentage of the executive
or program director’s time was spent in planning meetings, donor meetings to encourage
attendance, or perhaps media interviews? There is a tendency to say “well, we
have to pay them anyway, so what’s the difference?”. If the person makes say,
$75,000 a year, and they spent 100 hours on this event, then the event portion
of their salary was $3606, not including their per hour benefit costs. What is
the cost of volunteer time? The national allowable rate for calculating the
value of volunteer hours is in the $20/hour range. If five volunteers spent 20 hours each on the
event, that’s another $2,000. What about the cost of the office staff’s hours
specifically used for the event?
The point here is, these
costs are directly chargeable event production costs. They do affect how much
money can go directly to programs. You do have to pay these costs. They are the
reason why when you report to donors on program dollars, you can’t account for
$15,000 that actually bought dog food, filled food boxes, or purchased coats.
To arrive at a true adjusted
net income, you have to consider these costs. Just using the examples
above, your $15000 net return is now $9394. Divide the net cost ($15606) by the
net revenue, and it cost your organization $1.66 for every $1.00 of revenue
raised. You must either to increase the per-table cost, or sell a lot more
tables. It could be that you might actually decide that this event just isn’t
worth your investment.
You must find a way to
involve your board, your donors and grantors, and the community in a more
effective survival strategy. In future posts I’ll offer some suggestions to
accomplish that.
Rebecca Lee Baisch
Cloudlancer Writing Services
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