Running faster to stand still: Australian development NGO fundraising costs

This blog post continues our series looking into the finances of Australia’s aid or development NGOs. In the past we have focused on the changing size and sources of NGO revenue. In this post we take a look at how NGO expenditure has changed over the past decade, in particular in relation to the issue of spending money to raise money.

We aggregate and analyse data from the 20 biggest Australian development NGOs (in terms of total revenue from all sources). They make up approximately 85% of total sector funding. A follow-up post will take a look at these trends at the individual NGO level. The analysis is based on publicly available data from 2002/03 to 2012/13 taken from NGO annual reports.

As a quick refresher, we have already shown how public giving to development NGOs has flatlined since 2007, with NGO revenue growth being driven largely by increased funding from the Australian government. This has resulted in a game of snakes and ladders between NGOs in Australia.

Turning to the expenditure side, over the past decade, total expenditure, including that of revenue received from government grants, by the top 20 development NGOs in Australia has increased by 81% after inflation. Over the same period, funding for development projects as a proportion of total expenditure has decreased from 77% in 2002/03 to 74% in 2012/13. At the same time, Australian development NGOs have gotten leaner, with overall administrative costs falling from 9% to 7%. This difference is made up by a steady increase in fundraising costs, up from 10.5% to 13% since 2002/03. (Other expenses, not shown in Figure 1, such as community education, have also grown from 4% to 6%.)

Figure 1 illustrates the growth (in inflation adjusted terms) of different types of NGO expenditure. While administrative costs have only increased by 41% in the last decade, fundraising costs have more than doubled, growing by 123%. Funding for projects, meanwhile, has grown by 74%.

Figure 1: Index of different types of NGO expenditure (2012/13 constant prices; 2002/03=100)

figure1

Notes: Other minor expenses – such as community education – are excluded from the graph above. For sources, see the end of the post.

Note that the growth in fundraising costs was largely in line with the growth in development until leaping ahead in 2008/09, a year after public donations flatlined.

Figure 2 takes a closer look at the fundraising costs of the top 20 Australian development NGOs. They have increased sharply, from $66 million in 2002/03 to $147 million in 2012/13.

Figure 2: Scale-up of fundraising costs (2012/13 prices)

Figure2

To look at the effectiveness of these fundraising expenses we need to look at the ratio of fundraising expenses to donations from the public rather than all funds. (About 70% of NGO funds are from the public. Most of the rest comes from the Australian government.) After falling to 12% of donations in 2004/05 (a by-product of the surge of donations following the 2004 Boxing Day tsunami), fundraising expenditure has steadily increased as a share of public donations and now sits at 19%, slightly higher than it was in 2002/03.

While fundraising costs have increased by 50% between 2006/07 and 2012/13, public donations have only grown by under 2% after inflation. In 2006/07, for every dollar spent on fundraising the sector received $8 from the public. By 2012/13 this ratio had fallen to $5.30.

Figure 3: Declining returns on fundraising (2012/13 prices)
Figure3

What does this all mean? Of course, spending money to raise money is essential. And it is very hard, if not impossible, to say what the optimal level of fundraising expenditure is (ditto administrative expenditure).

What we can conclude is that the efficiency of fundraising in the sector seems to be on the decline. While fundraising costs have increased by 50% since 2006/07, there has been no discernible shift in the volume of public donations. Possibly such stagnation in the face of increased effort reflects something outside of NGO control – a hardened, less generous public. Possibly this increased fundraising effort is required to sustain the large increase in giving at the time of the Asian Tsunami in 2004. There may also be one-off factors involved, such as upfront investment costs in a transition to digital fundraising.

However, it is also possible that the increased fundraising effort is simply diverting donors from one NGO to another rather than increasing or sustaining the overall pool. Under this scenario, less fundraising effort wouldn’t mean fewer donations for the sector as a whole, but rather less competition between development NGOs.

The observed trends also raise the worrying possibility that a form of fundraising fatigue is setting in amongst the Australian public, and that enthusiasm for giving has waned, or at least plateaued, not despite but at least in part because of increased fundraising effort. Funds spent on fundraising are designed to be noticed. More and therefore more noticeable fundraising efforts may have turned people off, by making them think that too much of what they give will not reach the poor.

While a definitive verdict is beyond us, the warning lights are flashing.

Jonathan Wilson is completing a Master of International and Development Economics at the Crawford School of Public Policy, ANU, 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.

Notes: All the analysis in this post of the top 20 development NGOs is by total revenue received in 2012/13 – they are listed individually in the next post in this series. WWF and The Salvation Army have been excluded from the analysis because of difficulties separating financial information of their development activities from domestic activities they are involved in. All data were sourced from publicly available information in individual NGO annual reports. The full dataset, compiled by one of the authors (Wilson), is available here.

Public donations are monetary and non-monetary contributions received free of charge from the general public. They do not include financial support in the form of gifts or donations received through wills or grants from philanthropic organisations and corporate entities. These are reported in the categories “Legacies” and as part of “Other grants” respectively in the dataset.

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.

6 Comments

  • If you look at the graph on page 3 in my book ‘NGOs and Political Change’ the current fundraising levels are back to the long term trend as % of GDP (.02-.03%) and a little up on the 1990s fundraising in constant dollars so it is not all doom and gloom. A 2% real growth in fundraising is also not a shabby result in the long term (glass half full or half empty dicussion). These things depend on which year is chosen as the base year. The early 2000s even pre the tsunami were a growth time in NGO work, probably in response (by the public) to the harsh cuts of the Howard government. It is disasters that have given a boost to fundraising, which has a follow-on effect for a few years. The tsunami follow on went for a little longer maybe six or seven years. The other issue I take issues with is to have public education and advocacy as an expense. It is a legitimate NGO development activity (which dates back to the 1960s when the UN and the likes of Sir John Crawford encouraged it), and it is accepted as such by government through its recognised development expenditure (RDE) calculation, which in turn determines the subsidy amount in the ANCP. While the small group of public choice theorists in the IPA see it as fundraising ploy, most people in the international development do not. From the report there has been a 50% increase in public education (which was not separated out for some reason) which to me is a good thing, and might be a first step back to the glory days of development education and the consequent public support for aid of the 1970s. Six per cent is very low for development/global/public education and in the past here have been policies among some NGOs that it be much higher.

    Ashlee mail-outs occur because they work. Most NGO donors are of the pre-digital revolution generation and generosity increases with age. They would be fools to give up on mail-out and they generally are not fools. Those that do (reduce mail-outs) quickly re-instate them. Most NGOs have an strong on-line presence but that is for building a supporter base and advocacy and less for fundraising, but all do have online fundraising it just does not deliver heaps.

  • I don’t think annoying fundraising is to blame. Those fundraisers have always been quite annoying. Bounce back mailings to people who have just given a donation and plenty of appeal letters have been the norm for decades. The street canvassers are prolific because they are relatively successful in raising funds for organisations, even if at the same time they turn many people off. Fundraisers have always been faced with trying to get the balance right between leaving off and pestering, and they have found that not being pushy is a recipe for fewer and smaller donations.

    Perhaps this extra fundraising expenditure is like revving a car with its front pressed against a wall. More fuel is used, more noise is made but the car is not going anywhere.

    Maybe Australia has hit the wall with fundraising. We know that, despite media and politicians’ statements about our generosity, only a small amount is given by Australians in total to charities each year – around 0.3% of GNI (http://devpolicy.org/changes-in-donations-to-ngos-over-time-an-analysis-of-abs-data-20140313/;http://business.nab.com.au/nab-charitable-giving-index-indepth-report-12-months-to-august-2015-13518/;http://eprints.qut.edu.au/72596/1/Tax_stats_2011-12_Working_Paper_ACPNS_63.pdf).

    You could argue that this leaves a lot of room for expansion, but given that decades of fundraising have delivered no more than 0.3% of national income to charities then you would be a very optimistic fundraiser to think that this total could be lifted by a large amount.

    Perhaps more and more charities are fighting amongst themselves for a relatively small and fixed amount of money.

    • I think this could be part of it Garth–but I also think that the methods having always been annoying, having always used mailouts etc, could also be a sign that it’s time for a rethink. The methods haven’t really changed–but perhaps the audience has. In this era of ‘innovation’, perhaps this is a space that actually needs it.

      One thing that would be interesting to know, on your point of whether we have hit a fundraising wall, would be the age profile of donors. For younger people, particularly in cities, there’s a lot of housing and rental cost pressure, there’s childcare cost pressures, there’s educational debt from undergraduate and higher degrees. A lot of people I know would like to give more, and they support international development and NGOs in principle, but when 40% or more of your take-home income goes on rent or a mortgage, it can be hard to free up more resources for giving.

      • I certainly agree Ashlee that it is important to try to keep up with changes in the audience but it is my experience that most of the big charities do try to do that. If you look at the aid charity sector there is a large range of styles, messages and strategies – none seem to have found a way of unlocking much greater support.

        I also agree that income pressures are part of the issue as well as other society-wide factors including level of participation in formal religions, materialism, social trust, xenophobia and individualism. It’s these bigger issues that I think will largely determine how much is given in the future, not the efficiency of fundraising which is already quite innovative and knowledge-based.

  • I am a development worker and have always set aside a portion of our annual earnings for charitable giving but I have to say Australian charities have become noticeably more aggressive and predatory in their marketing techniques. I expect part of the explanation for falling effectiveness of promotion is down to this.

    If you donate you are immediately sent another donation request and plagued by phone calls. Fundraisers reject one off donations wanting people to sign up to monthly deductions. You can’t go to a supermarket without having to run the gauntlet. I think these techniques are backfiring. Some research and reflection is necessary if this problem is to be redressed.

    • Like Simon, I also wonder about the efficacy of some of the methods used. For example, an NGO that I donated to last year constantly sends me paper mail outs. As someone who frequently has to use the services of professional printers in my job, I know the high cost of creating these things. Despite initially donating to this NGO online, at no stage have I ever been able to opt in to receiving digital spam instead, which frankly I’d probably be more likely to click on a donate link from, particularly if I could pay really quickly using something like Paypal. The mail outs often go straight from letterbox to recycling bin. The paper mail outs actually really annoy me.

      I agree with Simon that some of the methods need a big rethink, particularly if targeting younger donors. Also, the charity muggers at the shops are often so ill-informed about development, the NGO they are spruiking, or anything really. I mean, it’s not surprising that would be a high turnover job, and I might not be the average donor given where I work, but I think younger people are well travelled and a lot more savvy about these things. Plus there is so much choice out there that if you have one annoying experience with an NGO (i.e. a particularly irritating charity spruiker at your local shops, mail outs that you don’t want), it’s pretty easy to support your chosen cause without choosing to support a charity that has mildly irritated you.

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