Declining fundraising efficiency: the story at the individual NGO level

8907144In our previous post we took a look at how Australian development NGO expenditure has changed over the last decade, focusing in on the dramatic increase in fundraising expenditure. At the aggregate level, the recent rapid scale-up in fundraising effort has not been matched by a commensurate increase in public giving to NGOs. Fundraising efficiency has declined: since 2006/07 public donations received for each fundraising dollar spent has fallen from $8 to $5.30.

These figures say nothing of how individual NGOs are performing. In today’s post, we’ll take a look at the fundraising patterns of these individual NGOs. Readers can also explore the expenditure and revenue of individual NGOs over the past decade for themselves in the interactive dataset available at the end of this post.

The key variable that we focus on in this post is the ratio of funds raised to fundraising expenditure. This is commonly used as a metric of NGO performance, for example, here. This is dangerous. We would all like as much of our donated dollar to reach the poor as possible. Everything else being equal, less expenditure on fundraising is better. But everything else is not equal. If our donated dollar was spent entirely on fundraising, and raised $1.10, we should be happy, provided we are convinced that $1.10 would not have otherwise been received by our good cause, or anyone else’s.

It’s really not clear how much NGOs should spend on fundraising. And different NGOs will need to spend more or less. For example, if you largely rely on a church-going group of donors, you will need to advertise less. Therefore, in what follows below, we pass no judgement on how much NGOs spend on fundraising, but instead focus on trends in fundraising efficiency.

Table 1 shows the ratio of public donations received per dollar invested in fundraising in 2006/07, when total public donations began flatlining, and 2012/13. A positive change reflects an improvement in a NGO’s fundraising efficiency. Take Médicins Sans Frontières (MSF) as an example. In 2006/07, for every dollar it invested in fundraising it received $5 in public donations. In 2012/13, for every dollar it invested in fundraising it received $7 in public donations, an efficiency gain of 22%. On the other hand, World Vision, Australia’s largest NGO, has seen its fundraising efficiency more than halve over the same period, from $14 to $6. The development NGOs – Australia’s 20 biggest in terms of total revenue – are ordered by their percentage change in fundraising efficiency over the period.

Table 1: Public donations received per dollar invested in fundraising
(constant 2012/13 $A)

Table 1: Public donations received per dollar invested in fundraising

Note: The numbers in brackets represent the NGO’s 2012/13 rank with regards to total revenue. Data for Marie Stopes International was unavailable for 2006/07, so an average of public donations and fundraising costs from 2004/05 and 2008/09 (the next available years of data) has been used. 

The first point to make about this table is that there are some odd results. That’s partly because of the way we’ve chosen our sample of NGOs: the top 20 in total income rather than public donations. One of those, Australian Volunteers International (AVI), receives less than 2% of its total revenue from public donations. We can ignore its fundraising numbers. The diversity among NGOs is also clear. As predicted, church-based NGOs have higher fundraising efficiencies than secular ones.  But there are idiosyncratic factors as well. Look at Global Development Group (GDG). It provides tax deductibility to smaller NGOs associated with it. Much of the fundraising work is done by those smaller NGOs. No wonder GDG has such low fundraising costs itself.

These caveats aside, the table does have some clear messages. Most NGOs are having to spend more to raise funds from the public. Only six of the top 20 NGOs (and two of the top 10: MSF and the Fred Hollows Foundation) have seen an improvement in their fundraising efficiency. MSF is a clear success story, with a 22% improvement in its fundraising efficiency, as well as a massive increase in funds raised (not shown in the table, but 68% or $27 million).

We see no discernible relationship with regards to an NGO’s overall size (by total revenue) and fundraising performance. The impact of government grants also doesn’t seem to have an impact on fundraising performance. Of the NGOs whose fundraising performance has improved over the past decade, grants have made up as much as 76% of total revenue (Marie Stopes) or as little as 11% (MSF).

More analysis is needed, and is being undertaken, but clearly it is a tough world out there for most development NGOs, trying to raise funds from the Australian public. 14 out of the top 20 have seen their fund-raising efficiency decline since 2006-07, 12 by more than 10%, and 10 by more than 20%. What to do? Mergers and acquisitions might sound like a way forward, but are a path closed off to most NGOs, who are part of international federations, and need to keep their brand.

Interestingly, the rising cost of raising funds is becoming a subject for NGO discussion and debate: for example, see these blogs (here, here and here) from the UK. We don’t have the answers, but we hope the analysis is helpful.

Jonathan Wilson is completing a Master of International and Development Economics at the Crawford School of Public Policy, and interned with the Development Policy Centre in 2015. Jonathan Pryke is a Research Fellow in the Myer Foundation Melanesia Program at the Lowy Institute. Stephen Howes is Director of the Development Policy Centre. The first part of this analysis is available here: this post also has more notes on the data. The underlying dataset and all calculations are available here

Interactive data explorer

Jonathan Wilson

Jonathan Wilson interned at the Development Policy Centre in 2015 through the Australian National Internships Program (ANIP), researching the economic determinants of public giving to Australian NGOs. He also worked as a Research Assistant at Devpolicy in late 2015, providing support with data for the Australian Aid Tracker.

Jonathan Pryke

Jonathan Pryke worked at the Development Policy Centre from 2011 as a Research Officer and Blog Editor, and left in mid-2015 to take up the position of Melanesia Fellow at the Lowy Institute. He has a Master of Public Policy/Master of Diplomacy from Crawford School of Public Policy and the College of Diplomacy, ANU.

Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School. Stephen served in senior economic positions for a decade at the World Bank before becoming AusAID’s first Chief Economist. In 2011 he was a member of Australia’s Independent Review of Aid Effectiveness.

5 Comments

  • We need to ‘reframe’ cost of fundraising (and administration). In annual reports we can say something like:

    ‘Of your $1 donation, 20% goes to ensuring the long term future of by being used to raise another dollar, 5% goes on recruiting and training the right people to help, 5% goes on costs to ensure we are legal, have the right software, efficient computer systems, licences, secure databases to protect your information, and transparency.

    Finally, around 4% goes on quality control and measuring the impact of your dollar.

    We can do much more good with 66c in the dollar when it is spent wisely than 99c with ineffective support systems.’

    Generally, worrying about cost of fundraising is distracting and although people say they worry about it, donors rarely have an idea of the cost of fundraising of their favourite charities.

    Try this old exercise on your board or SMT.

  • I agree with Garth. The biggest cost of fundraising is donor acquisition and a disaster is the lowest cost donor acquisition (sorry for sounding callous). This report has chosen some interesting base years. 2002 and 2007 both at fundraising peaks and low donor acquisition costs, the latter due to the tsunami. A better idea would be to go back another 10 or 20 years. Most of the data needed is in ACFID annual reports. I looked back 50 years but not cost of fundraising which is a very cyclical figure and as such hard to draw patterns (or conclusions) from

    • Hi Patrick,

      We decided to operate on a 10 year time series as that’s about as far back as a lot of NGOs publish their annual reports online. While it may be possible to get overall revenue figures from ACFID there’s no escaping the need to access every individual NGO annual report for the expenditure side of the equation, and unfortunately the data just isn’t readily available beyond 10 years. Picking the ‘right’ baseline may also be arbitrary if fundraising costs are indeed cyclical, but I think the stats Garth highlights below from the Asian tsunami onwards still illustrate an interesting, and somewhat worrying, trend.

      Regards,

      Jonathan

  • Hi Garth,

    Obviously I don’t know for certain, but that seems like a very plausible explanation to me.

    cheers

    Terence

  • Thank you all for this interesting analysis. Using the data you provide, the fundraising to donation ratio overall is:

    2003 17.8%
    2004 17.0%
    2005 11.7%
    2006 14.1%
    2007 12.7%
    2008 13.4%
    2009 14.9%
    2010 16.7%
    2011 17.3%
    2012 18.1%
    2013 18.8%

    The Indian Ocean tsunami in late 2004 dramatically boosted fundraising and acquisition of donors. Do you think it is possible that the increase in fundraising ratios since 2006 is largely the result of the tsunami’s impact on donations and the gradual drop out of those new donors acquired in 2005?

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