Should Fundraising be a “Profit Center”?

Bob Cryer

Bob Cryer

Gail Perry, in her 8/1/2014 blog post, makes the interesting suggestion that fundraisers define themselves to the nonprofit’s decision makers (the CEO, CFO and their Board) as a nonprofit “profit center” rather than as a nonprofit “cost center”.

If fundraising behaves like it is a cost center, management typically looks for ways to control and reduce that center’s costs. This makes it very difficult for the function to sell the CEO and Board on increasing the fundraising budget, because the fundraisers do not have a credible history of justifying their spending by reporting the profitability and rate of return on the investment of each of their existing fundraising programs.

In order to be perceived as a profit center, the fundraisers need to diligently keep track of the value of all of their efforts and the other expenses that that go into each fundraising campaign, and report the profitability and percent return of each campaign to management.

One benefit of doing this is that you might find very attractive ways of increasing your return. For example, you might have a homegrown online fundraising campaign that nets your nonprofit $15,000, which is the lowest net yield of all your programs. But it also has the highest return because it only costs you $3000 to get that return. You might decide that it would great investment, with little downside risk, to contract with an online fundraising expert to increase the quality of your campaign so it might generate $30,000 for a one time additional investment of $5000.

The other advantage of having fundraising be a profit center is that it gives the fundraisers credibility with management. Everyone knows the profitability and return of every campaign, and they are all good contributors because the fundraisers have eliminated or fixed all the weak sisters. Management is now much more willing to invest in new campaigns because of the fundraiser’s current performance and their willingness to hold themselves accountable.

In the last few years, the idea of a “social enterprise” has spread in the nonprofit community. One way of becoming a social enterprise is for a nonprofit to startup a for-profit business, like a thrift store, whose profits can help fund the nonprofit operations.

The reality is that every nonprofit that has a fundraising operation is already “social enterprise” because the sole purpose of fundraising is to generates profits to fund the nonprofit’s charitable operations. Fundraising is a for-profit business. It is a significant opportunity loss if nonprofits do not manage it like a for-profit business.

If you would like to discuss this idea, please contact us at Fundraising@ECofOC.org or at 949-715-4561

Author:  Bob Cryer, Executive Coaches of Orange County, www.ECofOC.org