Non-Profits Called to Explain Costs of Fundraising

Lori Halley 23 September 2010 3 comments

Can you imagine asking for $100, and telling your donor up front that $80 will go to the telemarketing company that interrupted his dinner, and only $20 to your non-profit?

You know that it takes money to raise money for a cause. And your donors, for the most part, can accept the reality that some part of their donation must go to cover overhead expenses. But there are costs... and then there are costs.

Just think how this week’s headlines play to the public you’re going be asking for renewed support in the coming holiday season:

These headlines are just a few of those appearing in the Canadian media over the past few days as the result of a CBC News investigation

The “optics” are bad enough – but, for some non-profits, the implications of high fundraising costs may be more serious yet – revocation of their registered charitable status.

The [Canada Revenue Agency, which regulates Canadian charities] recommends that no charity spend more than 35 per cent of revenue on fundraising and can revoke the registered status of any organization whose expenses seem disproportionately high.

Yet the CBC found examples in nearly every province in which local, provincial and national charities for years spent upward of 70 or 80 per cent of their revenues to pay the companies that organized their fundraising drives...

And some charities actually  lost money – that is, they had to pay out to external fundraisers more money than the fundraisers brought in for them! 

Try explaining that to your donors...

Only in Canada? Not by a long shot.

Concerns about fundraising costs – and about  accountability in the charitable sector in broader terms – have no borders.

We’ve seen similar concerns raised in the United States and around the world, especially as a side-effect of the global recession, with money tighter than it’s been since the Great Depression. People do want to help – the giving spirit is alive and well, even in these tough times – but donors are anxious to put their dollars where they’ll “do the most good.” That means an ever-greater demand for transparency and an assurance that their dollars are going to support your cause, not primarily to administration or fundraising costs.

The Canada Revenue Agency’s fundraising guidelines recognize that registered charities depend on donations and “may incur costs in their efforts to raise funds for their charitable work” but, as the CBC story notes:

A charity spending 70 per cent or more on fundraising, whether or not those expenses are for an external company, "is not considered to be devoting its resources to charitable activities" and raises red flags, according to the CRA website.

In cases where a high percentage of revenues is being paid to a non-charitable external fundraiser, a charity must be able to show that it has taken adequate measures to control costs, including determining the fair market value of the fundraising services. [emphasis mine.]

The Canadian Red Cross responded to the CBC story promptly and appropriately on their website, explaining briefly why they use external fundraisers among other methods and what the fundraising costs are for their organization, with a link to the annual report that gives more detailed financial information.

Otherwise, so far, there hasn’t been much in the way of public comment from the non-profit sector, beyond the specific groups named in local spin-off news stories.For the most part, those named groups have been justifying their fundraising costs as a practical matter, making the (valid) point that they simply don’t have the internal resources to conduct a major fundraising campaign, and so need to hire outside help to stay afloat.

Certainly, many small non-profits are in exactly the same position, as those of us who work in that environment are all too keenly aware.

But how well does that resonate with your donors, when all they see is that a marketing company gets most of the money they’ve sent to help underprivileged kids or keep the shelter open for one more day?

You may find it instructive to read some of the 817 comments (at the time of writing) on the CBC story, take a few notes about the recurring themes, and do some hard thinking about how your non-profit might address those concerns. Do check your own tax department for helpful fundraising guidelines and best practices. And if you’re working with an external fundraising company, you might want take a close look at the terms of your contract – from the viewpoint of your donors.

Yes, the cost of fundraising is an increasingly touchy issue for non-profits, and especially so for small non-profits without a big public profile and name recognition to trade on for funds... What are you doing to rein in fundraising costs, and/or to communicate those tough fundraising realities to your donors?  Please weigh in with a comment!

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Lori Halley [Engaging Apricot] Lori Halley [Engaging Apricot]

Posted by Lori Halley [Engaging Apricot]

Published Thursday, 23 September 2010 at 3:54 PM

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Comments

  • Lori Halley [Engaging Apricot] Lori Halley [Engaging Apricot]

    Lori Halley [Engaging Apricot] said:

    Thursday, 23 September 2010 at 12:02 PM

    As an aside, the CBC article mentions Charity Intelligence Canada who do a great job reporting on which charities get the biggest 'bang for the buck' in terms of donations going to operations vs. the cause. If you haven't read their recommended charities report it's definitely worth a look:

    http://www.charityintelligence.ca/

  • Laurie Pringle said:

    Friday, 24 September 2010 at 2:29 PM

    Charity Intelligence is an embarrassment. It's a few angry people who haven't taken the time to fully understand the challenges facing charities today.  The CBC article is misleading and dangerous to the 99% of charities who do things well.

    Here's a GREAT statement from Imagine Canada addressing the latest claims: http://www.imaginecanada.ca/files/www/en/misc/statement_regarding_cbc_10232010.pdf

    And another from the Association of Fundraising Professionals: http://afptoronto.org/index.php/news-and-annoucements/2010/09/23/397

    Most fundraisers make barely enough to survive.  They live hand-to-mouth and are held to higher standard by subscribing to the AFP Code of Ethics.  These rogue organizations referenced in the article are NOT representative.

    The CBC, The Star and a few others have taken examples from a couple bad apples and painted all charities with that brush.

    Charities in Canada, feed the hungry, shelter the homeless, take care of your parks and waters, rescue animals and do so much more.  The services that used to be managed by government are now being held together by charities.

    There are an abundance of problems in the charitable sector, mostly caused by the LACK of money they spend, not the fact that they spend too much.  If you want charities to do better - then it's time to rethink what you expect of them.  Charities should be held highly accountable for their expenditures, but sometimes you have to spend money to make money - and as any business person knows, you rarely get an immediate return on funds you invest today.

    By all means, hold charities accountable - but if you don't allow them to develop revenue streams for today AND tomorrow, by investing in long term revenue opportunities... and yes taking risks and failing on occassion, then you might as well kiss your clean water, clean air, clean parks, medical research, hospital wings, animal adoptions etc. goodbye - and be prepared to pay 25% more taxes for the government to do it.

  • Cynthia J. Armour, CFRE said:

    Saturday, 09 October 2010 at 12:58 PM

    Great comments Laurie Pringle!

    Below you will find what I posted on the CBC website the day of their article.  Sadly, very few people agreed ... I wonder how many of them are regular donors who have researched the charities where they invest?

    "I'm disappointed with CBC for taking the thrill-seeking side. I've worked with charities for 23 years and have volunteered for double that. I've always known that fundraising costs are only one measure of an organization's effectiveness and are difficult to compare equally due to all the variables.

    My experience as a fundraising trainer and non-profit board facilitator has only demonstrated to me how dedicated, conscientious and well-intentioned MOST Canadian charities are with donor's funds. Sadly, a few bad apples are poisoning the barrel ... however, based on the naive comments I've read today those who are commenting don't really understand the sector.

    In fact, Canada Revenue Agency (along with major donors/investors) understand there is a cost to doing good business. The ratios you've cited from CRA's Fundraising Guidance are only one measure. Costs of fundraising vary according to the method, cause, location and many other factors. Donor acquisition (like the acquisition of a new customer or client) is the most expensive part of doing business. The ideal is that we build long-term relationships that help offset that initial investment.

    I certainly hope the CBC speaks to the Association of Fundraising Professionals for their perspective. You can help people make informed decisions on where to allocate their charitable dollars without sinking this low."

    Cynthia J. Armour, CFRE (Certified FundRaising Executive)

    Principal, Elderstone Resource Development

    Strategic Leadership & Management

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