KPI of the Week: Fundraising Efficiency Ratio

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A KPI for Not-for-Profit Organizations — The fundraising efficiency ratio is a KPI used by not-for-profit organizations to measure how efficient the organization is at raising money. It is calculated by dividing the unrestricted contributions by the unrestricted fundraising expenses. The unrestricted contributions are the incomes from donors who do not specify where it must be used. The unrestricted fundraising expense is the money spent by the not-for-profit in order to collect the unrestricted contributions.

What should a not-for-profit organization expect its operating reliance ratio to be? Ideally, this ratio should be greater than one. An organization should spend less money in fundraising expenses than it gains in donations. The higher the result, the more efficient the organization is at raising money.

Why is this KPI important? By calculating this KPI, an organization can determine if they need to improve their fundraising efforts. If the ratio is below one, this indicates that the organization is spending more on fundraising than they are gaining. This could legitimately be the case if future donations are expected to culminate as a result of current fundraising efforts. In these cases, the fundraising efficiency ratio should be calculated after the fundraising cycle has completed. Otherwise, an organization should strive for a fundraising efficiency that is greater than one.

By tracking an organization’s fundraising efficiency ratio, management can gauge whether or not the fundraising efforts are becoming more or less efficient. As the efforts become more efficient, management can note what is working and strive to replicate or improve on these methods. If the ratio starts to decline, this gives management the insight that the fundraising efforts need to be re-evaluated and plan a different course of action. Either way, the fundraising efficiency ratio provides valuable information that management can use in order to improve its fundraising capabilities.

Key performance indicators (KPI) can be excellent tools for measuring and monitoring how the organization is meeting its goals. By choosing KPIs in each area of the not-for-profit organization that best aligns with the corporate’s strategic plan, an organization obtains the confidence that all areas are working toward these same goals. Contact Porte Brown to obtain more information on selecting the best KPIs for the organization.

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