Few Board Members would argue with the adage "You have to spend money to make money." Yet campus leaders often quibble about how much to spend to raise money or what funds to use to finance campaign costs. Perhaps a more pertinent expression when it comes to paying for fund-raising is "Everybody wants to go to heaven but nobody wants to die."
Stated more bluntly, everyone wants to reach the campaign's goals, but no one wants to pay the necessary costs. Depending on the maturity of the program and the scale of the effort, fund-raising costs can range from 4 cents to 25 cents to raise a dollar. Even if we assume the cost is 20 cents per dollar-the higher end of the scale-that would yield a 500 percent return. Not a bad investment.
Many universities engage in major campaigns with the goal of building their endowments. Generally, such campaigns must include a number of giving options and require significant up-front expenditures to succeed. For example, expanding the capacity for planned giving may involve hiring a well-paid staff whose benefit to the endowment will not be realized for several years. Consider the investment in a planned-giving staff member earning $100,000 per year who brings in three $1 million dollar irrevocable trusts with 20-year life expectancies. The present value of these gifts is $1.5 million or approximately a 1,400 percent return on investment.
Just as they do in business markets, opportunities and strategies in fund-raising change. Campaign directors might see the need to initiate a telephone solicitation program. They might decide to provide opportunities for Web-based pledging to capture new donors. Or they might hire that planned-giving staff member. All require an investment, all must be calculated into the overall costs of fund-raising, and all will provide returns far in excess of any returns reaped in the market.
If the logic is so compelling, why is there such resistance? A review of the emotional components of evaluating the costs of fund-raising may shed some light on the matter. Let us examine this issue from several perspectives.
From the donor's perspective: Donors contribute for many reasons, but they do so mostly because they want to support a worthwhile cause. Yet most are unfamiliar with the costs of sustaining a fund-raising program. They assume such costs are small and should be borne by the organization.
From the perspective of state government: Many states prohibit the use of state dollars for fund-raising. The policy consideration is not about prudent investment but about control. Because states cannot control the expenditure of public university-related foundation funds, many are unwilling to use state dollars to secure private support. A case could be made that permitting this use of state dollars would provide the highest rate of return on any investment of public money for a valid public purpose, but that's another story.
From the institution's perspective: Public institutions are funded at levels most campus officials perceive as inadequate. Many struggle to make it from one year to the next. Hence, it is difficult for many even to consider long-term investments in fund-raising. They believe someone else should support this "overhead" cost just as other overhead expenses are handled.
What is the best solution? Direct as much money as possible toward the needs of the university while simultaneously investing in the development function to maximize its yield and maintain strong relationships with donors. The most frequently used sources of funds for such an investment are the endowment fee, a percentage of each gift, and institutional support. On balance, the endowment fee is the least objectionable source of support, perhaps because it is the least visible.
What is the best solution? Direct as much money as possible toward the needs of the university while simultaneously investing tin the development function to maximize its yield and maintain strong relationships with donors. The most frequently used sources of funds for such an investment are the endowment fee, a percentage of each gift, and institutional support. On balance, the endowment fee is the least objectionable source of support, perhaps because it is the least visible.
Certainly no one wishes to spend more money on fund-raising than is necessary. But when compared with other investments institutions can make, an appropriate investment in raising money provides an exceptional return. Just stop and think about it.
Charles W. Steger is president of Virginia Tech in Blacksburg, VA
Custom Development Solutions, Inc. (CDS) is one of the most sought after fundraising consulting firms specializing in the strategic planning and tactical execution of capital campaigns for non-profits throughout the United States and Canada. If you have a fundraising question, please call CDS at 800-761-3833 or send an email to email@example.com.